Income Tax Calculator 2022-2023

Salary and wages include much more than people realize. This is by far the largest category when it comes to income taxes and covers any “official” income received through an organization or business. Your employer should provide you with a Form W-2 or Wage and Tax Statement that displays all your income and withholding information. This must be included on your tax return and your partner’s tax return when filing jointly. Salary and Wages include a large variety of different sources of income, but generally, if you receive money, the IRS considers it taxable income. The main sources of income are:

• Wages
• Pension income
• Annuities
• Gratuities
• Fees
• Commissions
• Profits
• Leave encashment
• Income from recognized provident funds (foreign pension funds)
• Contributions to employee pension accounts

There are also alternative sources of income that can include:

• Royalties
• Gifts
• Winnings from lotteries, gambling, races, game shows, etc.

Typically, these sources of income only happen sporadically, but they are taxable. Alternative sources of income are taxed as well. This can include:

• Income from rental properties
• Profit from a business or profession
• Capital gains on the sale of any capital assets

If you receive money, then chances are it is taxable and you should report it to the IRS.

While you may be under the perception that tips, cash or non-cash, received are non-taxable, the IRS considers tips to be taxable as well. Most often made in the food industry, tips are a large source of income for waiters and waitresses. Your base salary or wage is automatically taxed and your employer will withhold funds that are sent to the IRS. However, it is very difficult for managers to track tips, so you are responsible for reporting your tips to your employer for tax purposes. You can use Form 4070 and your employer will withhold money from your wages to pay taxes. Tips must be reported if they are cash tips of more than $20 per month, any non-cash tips, or tips gained through tip-sharing arrangements like tip pools. The only case where you don’t have to report tips to your manager is if you do not receive $20 in tips for the month per job, but this still must be included on your income tax return.

Interest income is reported on Form 1099-INT or Form 1099-OID and these figures must be included on your federal income tax return even if you do not receive the forms. Nearly all forms of interest income are considered earned income and are taxed normally. This includes interest earned on:

• Deposit accounts
• Account opening gifts
• Loans
• Certificates of deposit
• U.S. bonds (including municipal bonds)
• Insurance dividends or prepaid insurance gains
• Annuity contracts
• Original issue discounts on long-term debt
• Income tax refunds

The IRS also considers dividends received on accounts with credit unions, cooperative banks, and other banking institutions as interest income. Of possible sources of interest income, it is only exempt if the source of interest came from municipal bonds, private activity bonds, or exempt-interest dividends from a mutual fund or other investment company.

Dividends can be taxed as either qualified dividends or nonqualified dividends. Qualified dividends are taxed at a lower rate and include dividends from U.S. companies, U.S.-possessed companies, foreign companies eligible for benefits as part of a U.S. tax treaty, or a company’s stock that is widely available through a major U.S. stock exchange. Additionally, there are holding period requirements that require stock owners to hold the stock for a certain amount of time before receiving the dividend. If the dividend is unqualified, it will be taxed as regular income at the individual’s regular income tax rate.

When you receive alimony payments, you are receiving income, but the IRS does not consider alimony received as part of your gross income. Under previous legislation, if you receive alimony, you would have to pay income taxes. Fortunately, the Tax Cuts and Jobs Act (TCJA) made it so that any alimony received from a divorce finalized on or after January 1, 2019, is not taxed. This includes any divorce agreements modified during this period.

According to the IRS, “Most retirement plan distributions are subject to income tax and may be subject to an additional 10% tax.” You only need to pay this additional 10% tax if you withdraw money before you reach the age of 59.5 (exceptions exist). Otherwise, retirement distributions are considered regular income and must be filed on your tax return.

Unemployment compensation is considered taxable, but some rules may lessen your tax burden. If your adjusted gross income (AGI) is lower than $150,000, you can exclude up to $10,200 from your taxable income. Unemployment compensation considers any amounts received due to laws of the U.S. or laws of your state, which includes:

• State unemployment insurance benefits
• Benefits from the Federal Unemployment Trust Fund
• Railroad unemployment compensation benefits
• Trade readjustment allowances
• Unemployment assistance
• Federal Pandemic Unemployment Compensation (CARES)
• Benefits from a private fund that exceed any amount you voluntarily contributed to the fund

401(k) or IRA contributions: With a 401(k) or an IRA, your employee will withhold part of your salary and contribute to your retirement account directly. This means that any contributions to your 401(k) or Roth IRA are not included as part of your taxable income. This is not considered a deduction but rather is directly removed from your gross income. The IRS also offers employees who are saving for their retirement the Saver’s Tax Credit, which is a reduction of your income tax bill. When you make contributions to your 401(k) or IRA, the IRS will match 50%, 20%, or 10%, depending on your income, of the first $2,000 of your contribution as a tax credit, which directly reduces your tax bill. This amount stays at $2,000 for married couples filing jointly. In 2021, the maximum adjusted gross income (after deducting 401(k) or IRA contributions) to be eligible for this program is $66,000 for a married couple filing jointly, $49,500 for a head of household, and $33,000 for an individual or married couple filing separately.

Contributions to a health savings account: A Health Savings Account (HSA) is a specialized savings account for people meant only to cover qualified medical expenses. You must participate in a High-Deductible Health Plan (HDHP) to take advantage of an HSA. In 2021, the maximum contribution to an HSA is $3,600 for individuals or $7,200 for married couples filing jointly. There is also an additional $1,000 for taxpayers aged 55 or older as of the end of the tax year. Much like 401(k) or IRA contributions, HSA contributions are made before your income is considered for taxes, so it is a direct pretax deduction from your income (above-the-line).

• If you use an HSA to pay your medical bills, then you cannot use medical expenses as an itemized tax deduction.
• If you don’t use an HSA to pay your medical bills, you can use them as an itemized tax deduction only if your medical expenses exceed 7.5% of your adjusted gross income.

You can meet this threshold more easily by paying medical bills with your own money in addition to making HSA contributions to increase your eligible medical bills and decrease your AGI.

Charitable donations ($300 limit): If you make a cash contribution to an approved charitable organization, you can make an above-the-line deduction from your gross income of up to $300 as part of the CARES Act. While you can itemize charitable donations for up to 60% of your gross income, the above-the-line deduction can be done without itemizing your deductions. Your charitable donation must be for an approved purpose, which includes:

• Religious centers
• Charities
• Scientific organizations
• Literary, education
• Animal rights
• Amateur sports

There are many cases where you cannot use a charitable donation as an above-the-line deduction. This includes:

• Non-cash gifts
• Contributions to private foundations
• Donations to supporting organizations (or donor-advised funds)
• Donations to certain organizations (veterans’, fraternities, cemetery companies, burial companies, etc.)
• Contributions made in previous years

Self-employment income: In public companies, employees and employers are responsible for paying half of the total FICA tax each, but self-employed individuals need to pay this tax themselves (15.3%). Fortunately, the IRS allows half of this tax to be considered as “employer” paid, so you can deduct half of the total tax (7.65%) from your gross income. You can also deduct many expenses related to the operation of your business, including home office expenses, vehicle expenses, retirement contributions, education expenses, and interest on business-related loans.

Self-employed health insurance: Under self-employment, expenses related to dental, health, or long-term insurance premiums paid for by you can be tax-deductible given certain conditions. First, you must have positive earned income for the year, so you can’t deduct this expense from your taxes if your businesses generated a loss and you cannot deduct more than your generated income. Next, you must be either a partner or LLC member treated as a partner with a minimum of a 2% share. You are ineligible if you have the opportunity to enroll in another healthcare plan (Eg. under a spouse’s employer). You can also deduct health insurance premiums paid for your employees as part of a sole proprietorship or children under 27 years of age (both dependent and independent).

Jury duty income turned over to an employer: When participating on a jury, it is common for you to receive regular pay or paid leave. You may also receive payment from the court for your service. While both of these are considered part of your taxable income, employers who already pay their employees while on jury duty often require that earnings from the court are given to them. Fortunately, you can claim any amount given to your employer as an above-the-line deduction and reduce your gross income. While on jury duty, you may also receive an allowance for jury-related expenses like parking, transportation, or food. This amount is not considered part of your income and your employer cannot ask you to hand over this amount.

*Alimony Paid: Any alimony paid is still considered part of your gross income and is taxable. Under previous legislation, you could make an above-the-line adjustment for any alimony paid and directly deduct this amount from your gross income. However, the Tax Cuts and Jobs Act (TCJA) implemented new legislation that requires any alimony paid from a divorce finalized on or after January 1, 2019, to be reported as taxable income. This includes any divorce agreements modified after this date.

Qualified educator expenses: As a qualified educator, you are eligible to deduct up to $250 as an individual or $250 per spouse when married filing jointly from your taxable income as an above-the-line adjustment. According to the IRS, this includes any expenses related to the

Educators teaching health or physical education can make other deductions for athletic equipment. After March 12, 2020, any costs related to equipment or supplies used to prevent the spread of COVID-19 are eligible for deductions as well. To qualify, you must have been a teacher, instructor, counselor, principal, or aide for at least 900 hours per school year for an official elementary or secondary school for the grades K-12. If you receive interest excluded from your income, distributions from tuition programs, tax-free withdrawals from a Coverdell account, or unreported reimbursements (Form W-2), then you must offset any eligible qualified educator expenses by these amounts.

Early withdrawal penalties: If you incur early withdrawal penalties from a certificate of deposit (CD) or other time-deposit savings account, then you can deduct this amount from your taxable income as an above-the-line adjustment. CD’s have fixed terms, so to encourage individuals from pulling their money out before the CD matures, banks usually impose a set penalty on an early withdrawal. The total penalty amount will be reported on both your Form 1099-INT and Form 1099-OID.