How federal income tax is figured
- Start with your gross income: wages plus other income.
- Subtract pre-tax deductions such as traditional 401(k) and HSA contributions to get your adjusted gross income (AGI).
- Subtract the standard deduction or your itemized deductions, whichever is larger, to get taxable income.
- Apply the tax brackets, then subtract credits like the Child Tax Credit.
- Compare with what was withheld from your pay: if more was withheld, you get a refund.
Marginal vs effective rate
The US uses progressive brackets: each rate applies only to the income within that bracket. Moving into a higher bracket never reduces your take-home pay; only the dollars above the threshold are taxed at the higher rate. Your marginal rate is the rate on your last dollar; your effective rate is your total tax divided by your income, which is always lower.
2026 standard deduction
- Single or married filing separately: $16,100
- Married filing jointly: $32,200
- Head of household: $24,150
Figures are from IRS Revenue Procedure 2025-32. This is a federal estimate only; it doesn't include state tax, capital gains rates, self-employment tax or some newer deductions.
Example
A single filer earning $85,000 who puts $6,000 into a 401(k) has an AGI of $79,000 and taxable income of $62,900 after the $16,100 standard deduction. Federal income tax comes to $8,550, a 22% marginal rate but only about a 10% effective rate. With $9,000 withheld, the refund would be about $450.
Frequently asked questions
Why is my refund different from last year?
Changes in income, withholding, filing status, dependents and the yearly inflation adjustments to brackets all affect it. A refund just means more was withheld than you owed.
How do I lower my taxable income?
Contributing more to a traditional 401(k), IRA or HSA reduces taxable income dollar for dollar. Try raising the pre-tax deductions field to see the effect.
Is the Child Tax Credit refundable?
Partly. Up to $1,700 per child can be refunded even if you owe no tax, through the Additional Child Tax Credit. This estimate applies the credit only against tax owed, so a family with low tax may receive more.