How Federal Income Tax Works
The U.S. uses a progressive marginal tax system — meaning different portions of your income are taxed at different rates. You don't pay your top rate on all your income; you pay it only on the dollars that fall into that bracket. This is the most misunderstood aspect of income taxes.
For example, a single filer with $60,000 of taxable income in 2026 pays 10% on the first $12,400, 12% on the next $38,000, and 22% on the remaining $9,600, for a total of $7,912. Their marginal rate is 22%, but their tax is only 13.2% of taxable income.
Standard Deduction vs. Itemizing
Before applying the brackets, you subtract either the standard deduction or your itemized deductions, whichever is larger. Most filers take the standard deduction, because their itemizable expenses don't add up to more.
| Filing Status | 2025 | 2026 |
|---|---|---|
| Single | $15,750 | $16,100 |
| Married Filing Jointly | $31,500 | $32,200 |
| Head of Household | $23,625 | $24,150 |
| Married Filing Separately | $15,750 | $16,100 |
Itemized deductions include mortgage interest, charitable contributions, medical expenses above 7.5% of AGI, and state and local taxes (SALT). The SALT cap rose from $10,000 to $40,000 for 2025 and is $40,400 for 2026. Above $500,000 of modified AGI ($505,000 for 2026) it shrinks by 30% of the excess, but never below $10,000.
Four newer deductions apply for 2025 through 2028 whether or not you itemize: up to $25,000 of qualified tips, up to $12,500 of the overtime premium ($25,000 joint), up to $10,000 of interest on a loan for a new personal vehicle assembled in the U.S., and $6,000 for each person 65 or older. Each phases out at higher incomes. The calculator above doesn't apply them.
Self-Employment Tax
If you have self-employment income, you owe SE tax in addition to income tax. SE tax covers both the employee and employer share of Social Security (12.4%) and Medicare (2.9%) — a combined 15.3% — applied to 92.35% of your net self-employment income. The good news: you can deduct half of SE tax from your gross income, which reduces your income tax bill.
Effective Rate vs. Marginal Rate
Your marginal rate is the rate on your last dollar of taxable income — it's the rate people usually quote when they say "I'm in the 22% bracket." Your effective rate is your total tax divided by your total income. Once any of your income reaches a bracket above 10%, the effective rate is lower than the marginal rate, because the first dollars were taxed at lower rates.
Use the marginal rate to judge what an extra dollar of income, or an extra dollar of deductions, is worth. Use the effective rate to see what share of your income goes to tax overall.
Frequently Asked Questions
Does this calculator include tax credits?
No. Credits such as the Child Tax Credit (up to $2,200 per child for 2026), the Earned Income Credit, and education credits are not included here. The tax refund calculator applies them, along with the new deductions for tips, overtime, car loan interest and seniors, and your withholding.
Does it include the new deductions for tips, overtime, seniors, and car loan interest?
No. For 2025 through 2028, federal law allows deductions of up to $25,000 of qualified tips, up to $12,500 of the extra half of overtime pay ($25,000 joint), up to $10,000 of interest on a loan for a new U.S.-assembled personal vehicle, and $6,000 for each person 65 or older, each phasing out at higher incomes. They are claimed whether or not you itemize, and they lower taxable income below what this calculator shows.
What about capital gains?
Long-term capital gains are taxed at preferential rates (0%, 15%, or 20%) — not the ordinary income brackets shown here. Use our Capital Gains Tax Calculator for investment income.
Why is there a difference between this estimate and my actual tax return?
The calculator uses a simplified model: gross income minus your deduction equals taxable income. A real return can differ because of adjustments such as student loan interest, IRA contributions, and self-employed health insurance, the new deductions for tips, overtime, car loan interest, and seniors, tax credits, the alternative minimum tax, or investment income taxed at capital gains rates.