Step 1: Calculate Adjusted Gross Income (AGI)

AGI is calculated by adding all taxable income (wages, other income) and subtracting above-the-line adjustments (like student loan interest, IRA contributions, etc.).

Step 2: Apply Deductions

Either the standard deduction (based on your filing status and tax year) or a custom itemized deduction amount is subtracted from AGI to arrive at taxable income.

Step 3: Calculate Tax Liability

Federal tax is calculated using progressive tax brackets. State tax (if applicable) is calculated using state-specific brackets or flat rates. Non-refundable credits are then applied to reduce tax liability.

Step 4: Calculate Total Paid

Total tax paid includes federal and state withholding from paychecks, estimated tax payments, and refundable credits (which are treated as payments).

Step 5: Determine Refund or Balance Due

If total paid exceeds tax liability, you receive a refund. If tax liability exceeds total paid, you owe the difference.

Why Actual Results May Differ

This simplified estimate does not account for all possible credits, deductions, forms, schedules, state-specific rules, timing of income and deductions, carryovers, penalties, interest, and many other factors that affect your actual tax return. Professional tax software or a tax professional will provide a more accurate calculation.