An online tax calculator allows you to calculate the amount of your pay that goes into your savings account and how much is absorbed by the federal tax, state tax, Medicare, social security and any other payments. All you have to do is fill your details and hit the calculate button. They give you a detailed break up of the tax to be paid. The break down includes weekly, monthly, annual and daily payments that you have to pay.

The Federal personal income tax is the largest source of revenue for the U.S. federal government. All working Americans have to file a tax return with the IRS every year and most of them pay taxes throughout the year. This is in the form of payroll taxes that is held back from their paychecks. Income tax in the U.S. is calculated based on tax rates that range from 10% to 39.6%. Tax burden can be lowered by claiming exemptions, deductions and credits. Before you go ahead and use your online tax calculator, you should know the terms and definitions.

Income tax rate
We follow a progressive income tax which means higher income levels pay higher tax rates. These are called “marginal tax rates” and is not applied to the total income, but only to the income amount in a specific range. These are called brackets so an income falling in a specific bracket is taxed according to that bracket. Online tax calculators allow you to go ahead with the process effectively.

Income tax brackets
They vary according to your status single, married, household head. Married individuals choose to file separately or jointly. In some situations, it makes sense to file together while in others it is better to file separately. With an online tax calculator. A single filer with an income of $50,000 would have to pay a marginal tax of 25%. But not on the entire amount – on the first $9,225 it would be 10%, on the next $28,225 it would be 15% and on the remaining $12,550 it would be 25%. This is because marginal tax rates are applied to income that falls in that specific bracket.

Exemptions and deductions
Federal tax is applied to taxable income which is different than your total income (gross income). Taxable income is lower than gross income. To calculate taxable income, you have to adjust your gross income. You need to subtract student loan interest, contribution to IRA, moving expenses, health insurance for self-employed, and more. Then you can subtract the deductions and exemptions to arrive at taxable income. Exemptions can be for the taxpayer and his dependents – spouse, and children. For each exemption, it is $4000 which you subtract from your total income.Deductions are more complicated. Taxpayers claim the standard deduction. With an online tax calculator, the entire process becomes relatively easy.

Standard Deductions
Some taxpayers, may itemize their deductions by subtracting eligible expenses and expenditures. The most common deductions include:

• State and local taxes paid. Taxpayers can deduct the entire amount of any state and local taxes (income, property and sales taxes) paid for that tax year.
• Deduction for interest paid on mortgages on one or two homes, and a total of $1,000,000 in debt can be subtracted.
• Deduction for charitable contributions.
• Deduction for medical expenses that exceed 10% of AGI.
• Taxpayers don’t itemize the deductions. If the standard deduction is larger than the sum of your itemized deductions you will receive the standard deduction.

Once you have subtracted the exemptions and deductions from the adjusted gross income, you have a taxable income. For some, this may be zero, which means you do not owe any income tax.

Federal tax credits
Adjustments, exemptions and deductions apply to your income, tax credits apply to your tax liability (amount of tax you owe). Tax credits are given in certain circumstances. Some credits are refundable, and you can receive a payment even if you don’t owe any income tax. The most common federal income tax credits are listed below.

• Earned Income Tax Credit is refundable credit for taxpayers with income below a certain level. The credit can be $6,143 per year for taxpayers [with three or more children], or lower for taxpayers [with two, one or no children].
• Child and Dependent Care Credit is nonrefundable of up to $3,000 (for one child) or $6,000 (for two or more). These are related to childcare expenses incurred during work or looking for work.
• Adoption Credit is also a nonrefundable credit which is equal to certain expenses related to the adoption of a child.
• American Opportunity Credit is a partially refundable of up to $2,500 per year for enrollment fees, tuition and course materials for first four years of post-secondary education.

Tax refunds

• If you are or not getting the tax refund depends on the amount of taxes have paid during the year (these are withheld from your paycheck), your tax liability and if you have received refundable tax credits.
• When you file your return, if the tax amount is less than the amount withheld from your paycheck during the year, you will receive a refund for the difference. This is why most people receive a tax refund.
• If you have paid no taxes and owe no taxes during the year, but are eligible for refundable tax credit, you will receive a refund equal to the refundable amount in the credit.

Paying taxes
Pay your taxes by credit card to get rewards and points. The IRS has authorized PayUSAtax, Pay1040 and Official Payments to collect taxes via credit card payments. All the three modes charge fees.