The Hustler's Digest StaffTax is collected from individuals and corporations by the city, state, or country where they reside or operate. But what exactly is federal income tax, and how much is federal income tax? Read this article to know everything.
The federal income tax is a tax on annual earnings for individuals, businesses, and other legal entities. All wages, salaries, cash gifts from employers, business income, tips, gambling income, bonuses, and unemployment benefits are subject to a federal income tax. The federal income tax is the largest source of revenue for the federal government. Except for Washington, Texas, Florida, Alaska, Nevada, South Dakota, and Wyoming, all states withhold state income tax and federal income tax. State income tax rates vary from state to state.
However, not everyone is required to file an income tax return each year. Generally, if your total income for the year doesn’t exceed a specific limit, then you don’t need to file a federal tax return. The amount of income you can earn before filing a tax return also depends on your income type, age, and filing status.
In the U.S., federal income tax rates for individuals are progressive, meaning that as taxable income increases, so does the tax rate. Federal income tax rates range from 10% to 37% and kick in at specific income thresholds. The income varies. The rates that apply are called tax brackets. If your income falls into the tax brackets, you must know how much is federal income tax? For detailed information, you must read ahead.
Federal income tax definition
The Internal Revenue Service levies federal income tax on individual and corporate income to pay for government services. Income can come from a job, investments, a business, or retirement funds, and most of it is taxable. Individual incomes are taxed at progressively higher rates as the total taxable amount increases, while businesses are taxed at a flat rate.
The IRS collects the tax. Companies or employers must follow the IRS-determined tax schedule to submit timely taxes. Federal tax filing for employers does not occur yearly (unlike individual taxes) but throughout the year. Withholding federal income tax is a multi-layered process, unlike Medicare and Social Security, which bases on a flat percentage.
What is federal income tax withholding?
There are a few types of federal taxes you need to withhold from each of your employees’ paychecks, including
- Social Security
- Medicare
- Income
Both Social Security and Medicare taxes are fixed-rate taxes you withhold from your employees’ wages and pay on behalf of your employees. Social Security is 6.2% for both employees and employers (for 12.4%). Medicare is 1.45% for both employee and employer, totaling a tax of 2.9%. These two taxes (aka FICA taxes) fund specific federal programs.
Federal income tax withholding (FITW) varies between employees. The IRS bases FITW on the total amount of taxable wages. Unlike Social Security and Medicare taxes, federal income taxes do not go to one specific program. The government uses federal income taxes from employees to fund several programs (e.g., defense and veteran’s benefits). How do you calculate the taxes because federal income tax withholding varies between employees?
The IRS uses two different methods to calculate federal income tax withholding: the wage bracket method and the percentage method. Both ways give you similar calculations. Reference publication 15-T for charts and other information to help you choose which method works best for you.
Once you decide which federal withholding tax table you want to use, gather information from your employee. You need the pay frequency for your employee, their total earnings for the pay period, and the information on their Form W-4. Use all of the data to calculate their federal tax withholdings.
Exemption from withholding
You may hire an employee who is exempt from federal withholding. In the case of an exemption, do not withhold any federal income tax from the employee’s paychecks. Employees must indicate if they are exempt from FITW on Form W-4 on Step 4(c) by writing “EXEMPT.”
Depositing federal income tax
Once you calculate your employee’s withholding, the IRS requires that you deposit the taxes on a regular schedule. Do not keep the taxes or use them for other purposes. Keeping or using the money is illegal, and you could be subject to civil and criminal sanctions. The IRS determines your income tax deposit frequency and will notify you of any changes. The two deposit schedules are monthly or semi-weekly.
You must pay monthly deposits by the 15th of the month following the end of the calendar month. For example, January deposits are due on February 15th. If the 15th of the month falls on a weekend or holiday, deposit the taxes the next business day. Semi-weekly deposits depend on your pay date. If your payment date falls on a Wednesday, Thursday, or Friday, deposit the taxes by the following Wednesday. Pay dates that occur on Saturday, Sunday, Monday, or Tuesday have a deposit date of the following Friday.
How federal income tax works?
Income tax is paid by citizens and residents, corporations, trusts, estates, and other legal entities on their worldwide income unless specifically exempted by law. Anyone who earns income in the US can be taxed. Married couples can be taxed together or separately.
The IRS collects federal income tax in three ways. The first method is direct withholding of the tax at the time of payment from an employer. The second option is through estimated quarterly payments. The third method is through annual filings.
If your employer didn’t withhold enough or had other sources of income, say from a rental property or the sale of stocks, the filing process allows the government to monitor and make sure you paid all the tax. The federal government uses income tax revenue to support various services, with national defense, health care, and public assistance programs among the largest.
What does the U.S. government use federal income taxes for?
Federal income taxes are used to provide programs and services intended to benefit taxpayers. These include:
- National defense
- Veterans and foreign affairs
- Law enforcement
- Food and housing assistance programs
- Interest on the national debt
- Pensions and benefits for government workers
- Improvements for education, health, agriculture, and public transit
- Emergency disaster relief
Reporting federal income tax
You need to report how much federal income tax you deposit. To do this, use either Form 941 or Form 944. File Form 941 by the last day of the month following the end of the quarter. The filing schedule deadlines for Form 941 are:
- April 30 for the first quarter
- July 31 for the second quarter
- October 31 for the third quarter
- January 31 for the fourth quarter
Form 944 is an annual form due on January 31 of the following year. Only use Form 944 if the IRS notifies you in writing that you must use this form and not Form 941.
Income tax brackets
Tax rates differ depending on your filing status and the taxable income you report for the year. You can use the tax brackets to determine how much you can expect to pay in taxes for the year. Here are the tax brackets for 2021 and 2022 and how you can calculate what bracket applies to your taxable income.
2021 Income Tax Brackets (Taxes Due April 2022 Or October 2022 With An Extension)
For the 2021 tax year, there are seven federal tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Your filing status and taxable income will determine what bracket you fall in.
2021 single filers tax brackets
| Taxable income | Due tax is |
| Not over $9,950 | 10% of the taxable income |
| Over $9,950 but $40,525 | $995 plus 12% of the excess over $9,950 |
| Over $40,525 but not over $86,375 | $4,664 plus 22% of the excess over $40,525 |
| Over $86,375 but not over $164,925 | $14,751 plus 24% of the excess over $86,375 |
| Over $164,925 but not over $209,425 | $33,603 plus 32% of the the excess over $164,925 |
| Over $209,425 but not over $523,600 | $47,843 plus 35% of the excess over $209,425 |
| Over $523,600 | $157,804.25 plus 37% of the excess over $523,600 |
2021 married filing separately tax brackets
| Taxable income | Tax due is |
| Not over $9,950 | 10% of the taxable income |
| Over $9,950 but $40,525 | $995 plus 12% of the excess over $9,950 |
| Over $40,525 but not over $86,375 | $4,664 plus 22% of the excess over $40,525 |
| Over $86,375 but not over $164,925 | $14,751 plus 24% of the excess over $86,375 |
| Over $164,925 but not over $209,425 | $33,603 plus 32% of the the excess over $164,925 |
| Over $209,425 but not over $314,150 | $47,843 plus 35% of the excess over $209,425 |
| Over $314,150 | $84,496 plus 37% of the excess over $314,150 |
2021 Head of Household Tax Brackets
| Taxable income | Tax due is |
| Not over $14,200 | 10% of the taxable income |
| Over $14,200 but $54,200 | $1,420 plus 12% of the excess over $14,200 |
| Over $54,200 but not over $86,350 | $6,220 plus 22% of the excess over $54,200 |
| Over $86,350 but not over $164,900 | $13,293 plus 24% of the excess over $86,350 |
| Over $164,900 but not over $209,400 | $32,145 plus 32% of the the excess over $164,900 |
| Over $209,400 but not over $523,600 | $46,385 plus 35% of the excess over $209,400 |
| Over $523,600 | $156,355 plus 37% of the excess over $523,600 |
2021 married filing jointly tax brackets
| Taxable income | Tax due is |
| Not over $19,900 | 10% of the taxable income |
| Over $19,900 but not over $81,050 | $1,990 plus 12% of the excess over $19,900 |
| Over $81,050 but not over $172,750 | $9,328 plus 22% of the excess over $81,050 |
| Over $172,750 but not over $329,850 | $29,502 plus 24% of the excess over $172,750 |
| Over $329,850 but not over $418,850 | $67,206 plus 32% of the excess over $329,850 |
| Over $418,850 but not over $628,300 | $95,686 plus 35% of the excess over $418,850 |
| Over $628,300 | $168,993.50 plus 37% of the excess over $628,300 |
How to figure out your tax brackets?
The IRS created tax brackets to determine your tax so both parties can know how much money the taxpayer has to pay to the IRS. The amount you pay in taxes depends on your income. If your taxable income increases, the taxes you pay will increase. You can calculate the tax bracket you fall into by dividing your income that will be taxed into each applicable bracket. Each bracket has its tax rate. The bracket you are in also depends on your filing status: if you are a single filer, married filing jointly, married filing separately, or head of household.
The tax bracket your top dollar falls into is your marginal tax bracket. This tax bracket is the highest tax rate, which applies to the top portion of your income.
Suppose you are single and your taxable income is $75,000 in 2022; your marginal tax bracket is 22%. However, some of your income will be taxed at the lower tax brackets, 10%, and 12%. As your income moves up the ladder, your taxes will increase:
- The first $10,275 is taxed at 10%: $1,027.50.
- The next $31,500 (41,775-10,275) is taxed at 12%: $3,780.
- The last $33,225 (75,000-41,775) is taxed at 22% $7,309.50
- The total tax amount for your $75,000 income is the sum of $1,027.50 + $3,780 + $7,309.50 = $12,117 (ignoring any itemized or standard deductions that may be applicable to your taxes).
How to get into a lower tax bracket and pay a lower federal income tax rate?
There are two common ways of reducing your tax bill: credits and deductions.
- Tax credits directly reduce the amount of tax you owe; they do not affect what bracket you are in.
- On the other hand, tax deductions reduce how much of your income is subjected to taxes. Generally, deductions lower your taxable income by the percentage of your highest federal income tax bracket. So if you fall into the 22% tax bracket, a $1,000 deduction could save you $220.
In simple words, take all the tax deductions you can claim; they can reduce your taxable income and kick you to a lower bracket, which means you pay a lower tax rate.
Federal income tax rate calculator
Knowing which tax bracket you are in can help you make better financial decisions. There are several calculators to estimate your 2021 taxable income (for taxes filed in 2022) and federal income tax rate.
Intuit turbotax
Enter your tax year filing status and taxable income to calculate your estimated tax rate. The information required is filing status, annual taxable income, and your marginal tax rate.
TaxAct
TaxAct’s free tax bracket calculator is a simple, easy way to estimate your federal income tax bracket and total tax. To calculate the tax rate, you are required to provide your filing status and total expected gross income for a certain year.
Other than these two, you can find several other tax rate calculators as per the state you live in.
Income tax calculator
Taxes are personal, and it is a challenge to determine what you may get back or what you may owe on your tax return. Especially when you factor in recent tax law changes. The income tax calculator helps forecast your federal income taxes before you file. You just enter your income and details about your financial circumstances to understand your tax situation. Various online calculators will help you determine your federal income tax. Let’s give you an overview of a few income tax calculators.
Forbes advisor’s income tax calculator
How much you might pay in federal and state taxes this year? Most people can use IRS Form 1040 to determine how much they will pay in income taxes and whether they will owe money to someone or qualify for a refund. Each state also has different tax forms and rules that determine how much you must pay.
You can use Forbes’s 1040 income tax calculator to estimate how much tax you might pay on your taxable income. To calculate income tax with its online calculator, you will provide details related to income, filing status, your state, itemized deductions, total 401(k) contributions, total IRA contributions, and several dependents. Once you provide the required information, you will have your income tax calculation for a specific year. Keep in mind that this is an estimation and merely estimates how much your income tax will be.
Calculator.net
This income tax calculator estimates the refund or potential owed amount on a federal tax return. It is mainly intended for residents of the U.S. and is based on the tax brackets for 2021 and 2022. The 2022 tax values can be used for 1040-ES estimation, planning, or comparison. To use this calculator for having an estimate of your income tax, you will provide certain information such as filing status, income ( including various types of incomes such as wages, tips, other compensation, federal income tax withheld, state income tax withholding, local income tax withheld, and other types of income), and deductions & credits.
TaxAct
To use the online income tax calculator by TaxAct, you will answer a few simple questions about your life, income, and expenses, and our free tax calculator will give you an idea if you should expect a refund and how much, or if you will owe the IRS when you file taxes in 2021. You will need to provide some information such as your personal information, deductions & credits, and income.
H & R block calculator
Answering a few questions about your life, income, and expenses with our tax calculator will answer the questions we all want answers to: Will I get a refund or owe the IRS? How much? You will only need to provide the information related to income, deductions & credits, and filing status.
Why do we pay taxes? Federal income tax is the biggest source of government funding
Taxes, though not particularly popular, are key to fostering economic growth and development and to achieving the common goal of a prosperous and functional society. Total US federal spending for fiscal 2021 was about $10.1 trillion, according to data compiled by USAspending.gov. State government general fund spending was $931.7 billion, according to a report from the National Association of State Budget Officers. All that money has to come from somewhere. That’s why we pay taxes: to help fund governments at all levels.
The taxes collected by governments foster economic growth and development, paying for essential goods and services such as infrastructure, health care, and education in order to achieve the common goal of a prosperous, functional, and orderly society. Taxes are also a key ingredient in the social contract between citizens and the economy. How they’re collected and spent can determine a government’s very legitimacy.
Conclusion
Taxes are complicated, but having a better understanding will help you assure you are paying only what you truly owe. The federal income tax system is intended to protect the less privileged and ensure the more privileged pay a minimum amount of taxes. Deductions of all kinds can lower the amount we are taxed. As far as you are concerned, how much is federal income tax? You can check the tax brackets available online for tax due currently and in April 2022. There are also several calculators available to estimate your due tax, which will help you make better financial decisions.
