How To Estimate Your Tax Refund
More than half of all tax filers in the United States received a tax refund in 2021 for the 2020 tax year, according to the IRS. Figuring out what you’ll get back on your tax return can help you plan for the impact your refund will have on your personal finances. You can estimate your tax refund easily with a few key pieces of information and a bit of math.
Before diving into the math, it’s important to understand the difference between your tax return and your tax refund. A tax return is the form you file annually that outlines your income, expenses, investments and other tax-related information. The information on your tax return will determine whether you receive a tax refund.
You get a tax refund when you pay more taxes to your state government or the federal government than your actual tax liability. A refund is a check from the government for the amount you overpaid.
The first step in estimating your tax refund is to calculate your taxable income. Taxable income can be calculated as your gross income minus all deductions. There are two types of tax deductions: standard and itemized.
The IRS determines a standard deduction to reduce each taxpayer’s taxable income by a certain amount based on factors like filing status, age and number of dependents. An itemized deduction requires you to keep track of expenses like home mortgage interest and charitable contributions to deduct from your taxable income when you file your return. What’s left after all available deductions is your taxable income.
If you choose an itemized deduction over the standard deduction when you file your federal tax return, you can deduct most state and local taxes, including income, property and real estate taxes. This is known as the SALT (State and Local Tax) deduction, and the total amount that can be deducted is capped at $10,000.
Once you find out your taxable income, the next step to estimating your refund is to apply your tax bracket. Your tax bracket determines what percent of your taxable income the government collects. So if you earn a higher income, you’ll pay a higher percentage of that income in taxes. That progressively increasing percentage is your marginal tax rate.
By applying your marginal tax rate to your taxable income, you can estimate how much tax you owe in that tax year.
Throughout the tax year, most employers withhold some tax from their employees’ paychecks and pay it to the IRS on their employees’ behalf. This is what’s called tax withholding.
If the amount you owe is greater than the amount your employer withheld from your paycheck, you must pay taxes to the IRS. More commonly, though, you’ll end up owing less than the amount withheld, which means the IRS will pay the difference back to you in the form of a tax refund.
Let’s look at an example. Say you’re a single filer who makes $50,000 annually.
- Calculate your taxable income.
- Your taxable income is your gross income of $50,000 minus your deduction. The standard deduction for a single filer in the 2021 tax year is $12,550, which puts your taxable income at $37,450.
- Apply the marginal tax rate.
- For a single filer, your income up to $9,950 is taxed at 10%, which amounts to $995 in taxes. The remaining $27,500 is taxed at 12%, which comes to $3,300. Your total tax liability for the 2021 tax year is the sum of those amounts, or $4,295.
- Subtract from withholdings.
- Finally, subtract your tax liability from the amount of tax withheld by your employer. You can find this number on your W-2. Let’s say your employer withheld $6,000 in taxes this year to pay to the IRS on your behalf. Subtract the $4,295 in taxes you owe from the $6,000 withholdings, and you can estimate a refund of about $1,705 for the 2021 tax year.
How Much Will My Tax Refund Be If I Make $50,000?
Looking to see what you might owe?: Find out what Federal tax bracket you’re in
Tax Refund Calculator
If all that math looks a little intimidating, or if your situation is a bit more complex than the above scenario, don’t worry. Below, you’ll find a Tax Refund Calculator. Just input some information like your filing status, dependents and yearly wages, and you’ll get a rough estimate of what your tax refund will be for the year.