NEWSLETTER
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In this world, Benjamin Franklin said, “nothing is certain except death and taxes.” And he was right: Unless you earn less than the standard deduction (which is $13,850 for single filers in tax year 2023), all Americans have to file federal income taxes.
But doing your taxes shouldn't feel like a choose-your-own-adventure. In recent years, the IRS has taken steps to propel itself into the 21st century by transforming into a modernized, customer-focused entity.
This was largely due to funding increases under the Inflation Reduction Act, which was signed into law in 2022 by President Joe Biden.
The changes included everything from eliminating paper delays to making fewer unannounced home visits, as well as providing more online resources for taxpayers, such as tools to help you calculate federal withholding from your paycheck, if applicable. eligible for certain tax credits and even when you will receive your tax refund.
Additionally, beginning with tax year 2023, the IRS launched a free direct tax filing program designed to help Americans of all ages and income levels make their taxes easier and error-free.
First, some basics.
What is federal income tax?
American independence was born out of a tax revolt (against Great Britain in the 18th century), but taxes quickly became a cornerstone of American democracy. Back then, there was no income tax and settlers did not receive any government services in exchange for their tax money; After the American Revolution, tax rates increased significantly on tariff items such as alcohol and tobacco. In 1862, to help finance the Civil War, President Abraham Lincoln imposed taxes on the wealthiest Americans: a 3% tax on income over $600 and a 5% tax on income over $10,000.
In 1913, before the start of World War I, the United States Congress passed the 16th Amendment, giving it the authority to collect income taxes from any source. It collected taxes on the wages of millions of American workers, dramatically changing their ways of life.
Related: What is the standard deduction for 2023 and 2024? Has increased?
Today, federal income tax revenue represents 16.4% of US GDP, and that's a good thing, according to the World Bank, which says a tax-to-GDP ratio above 15% ensures healthy economies and reduce poverty.
If you're wondering if federal income taxes are the same as FICA: they're not. Both are deducted from your paycheck, but go to different things: FICA funds Social Security and Medicare programs, while money from your federal income taxes funds public services like the US military, highway systems, law enforcement and social and community development programs, to name a few.
How are federal income taxes filed?
How can you find out exactly what federal income taxes you owe? Start by gathering all the information you need to complete your tax forms. This includes your Social Security number or Individual tax identification numberyour bank account and routing numbers, the PIN you used if you filed your taxes electronically last year, your current address, eligible expenses, and all wage documentation, such as your pay stubs, W-2s, and 1099s.
Then, follow these steps.
1. Know what tax bracket you are in
The United States federal income tax system is a progressive tax system. That means that as your income increases, the amount of taxes you pay also increases. It groups these rates into seven categories or brackets: 10%, 12%, 24%, 32%, 35% and 37%.
- Income tax brackets are based on your filing status, which takes into account your marital status. The most common are single, married filing jointly, married filing separately, and head of household.
- Tax brackets are also based on your taxable income, which is also known as adjusted gross income (AGI).
Due to rising inflation, the IRS made some big changes to the 2023 tax brackets, adjusting the income limits by 7%, which could put you in a lower tax bracket. That means you may have to pay less taxes in tax year 2023 (due April 15, 2024). The standard deduction also increased.
The 2024 brackets also saw some income adjustments, along with the standard deduction, but not as much as in the 2023 tax year.
2. Add credits and claim deductions
Now it's time for credits and deductions. What is the difference between the two?
- A tax credit is a specific dollar amount that you subtract from the tax you owe.
- A tax deduction is an eligible expense that you can use to reduce your taxable income.
The IRS offers a number of tax credits; here are some:
- Low- and middle-income workers are eligible for the Earned Income Tax Credit (EITC)
- The Child Tax Credit provides a tax exemption to parents and caregivers of children under 17 years of age
- Credits are also available if you pay Childcareor if you adopt child
- Students are eligible for educational credits, such as American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC)
- Credits are available for savers who contribute to an IRA or employer-sponsored retirement plan
- There is Clean Vehicle Tax Credits and Home Energy Tax Credits
- Eligible taxpayers could receive a Premium Tax Credit for your health insurance premiums
When it comes to tax deductions, taxpayers can choose between claiming the standard deduction, which is a specific dollar amount based on their tax filing status, or itemizing deductions. In the event that your itemized deductions rival the standard deduction, the IRS encourages people to take the standard deduction; It's less paperwork for everyone.
3. File your taxes
The most important thing to remember when filing your taxes is to file them before the due date, or file an extension. The deadline to file 2023 taxes is April 15, 2024.
There are a number of paid accounting software programs you can use to file your taxes, but why shell out your hard-earned money when many tax filing programs are completely free?
- The one sponsored by the IRS Free Files Program is a partnership between the IRS and authorized tax software providers, such as ezTaxReturn.com. Eligible taxpayers have an adjusted gross income of $79,000 or less. (People with higher incomes can use IRS Fillable Forms although support is limited.)
- New in 2024 is the IRS Direct File pilot program. This service allows taxpayers to upload their returns directly to the IRS website. Currently limited to residents of AZ, CA, FL, MA, NH, NY, NV, SD, TN, TX, WA, and WY.
- Do you prefer to prepare your taxes in person? He Voluntary Income Tax Assistance (VITA) offers free tax preparation by trained volunteers. This program is available to taxpayers who earn less than $64,000 per year. People with disabilities and those who do not speak English are also eligible.
Whatever you do, be sure to file your taxes online (the IRS emphasizes that refunds from paper returns take much longer to reach their destination)—about a month, on average, though in October 2023, the agency It still had a backlog of 1.9 million paper returns.
And regardless of whether you opted for a paper check or direct deposit, you can check the status of your refund 24/7 through the IRS's convenient system. Where is my refund? application.
4. Make sure your payroll withholdings are correct
Do you know how much taxes will be deducted from your salary? You don't have to wait until tax season to find out if your withholdings are correct. A lot depends on the answers you provided on your W-4 form, so be sure to keep it up to date with your employer as your life changes. The IRS even has a withholding estimator app that does the heavy lifting for you; That way, you'll avoid a nasty tax bill the next time you file your taxes.
