The short answer
- Taxable income = total income − adjustments − the standard or itemized deduction − any extra deductions.
- Tax is charged band by band at 10%, 12%, 22%, 24%, 32%, 35% and 37%.
- Credits, such as $2,200 for each child under 17, come off the tax itself.
- Compare the result with what was withheld from your pay to see your refund or balance due.
How the 2026 return works
- Step 1Total income
Wages, interest, dividends, gains, business profit, pensions and other income.
- Step 2Adjusted gross income (AGI)
Less adjustments such as half of self-employment tax, deductible IRA contributions and student loan interest.
- Step 3Taxable income
Less the standard or itemized deduction, plus the senior, tips, overtime and business income deductions.
- Step 4Tax
Brackets on ordinary income; 0%, 15% or 20% on long-term gains and qualified dividends.
- Step 5Credits and other taxes
Less credits; plus self-employment tax and surtaxes.
- Step 6Refund or balance due
Compare with tax withheld and estimated payments.
What counts as income
Almost everything: wages (box 1 of your W-2, which is already after traditional 401(k) and cafeteria plan deductions), tips, bonuses, interest, dividends, capital gains, freelance and gig profit, rental profit, unemployment benefits, pensions and IRA withdrawals, and part of Social Security for many retirees.
Some income is tax-free: Roth IRA withdrawals that qualify, municipal bond interest, gifts and inheritances you receive, most life insurance payouts, and up to $250,000 of gain on selling your main home ($500,000 for married couples).
Adjustments and AGI
Adjustments come off before your deduction, so they help whether or not you itemize. The main ones are half of self-employment tax, deductible traditional IRA contributions (up to $7,500 in 2026, plus $1,100 at 50 or over), HSA contributions made outside payroll, student loan interest (up to $2,500) and self-employed health insurance and retirement plans.
The result is your adjusted gross income (AGI). Many other rules hang off it: the child tax credit phase-out, the senior deduction and the Roth IRA limits, among others.
Standard or itemized deduction
| Filing status | Standard deduction | Extra at 65 or blind (each) |
|---|---|---|
| Single | $16,100 | $2,050 |
| Married filing jointly | $32,200 | $1,650 |
| Married filing separately | $16,100 | $1,650 |
| Head of household | $24,150 | $2,050 |
You itemize only if your deductions add up to more. The main ones are mortgage interest, state and local taxes (the SALT deduction, capped at $40,400 for 2026, or $20,200 married filing separately, and reduced for incomes above $505,000), gifts to charity and medical costs above 7.5% of AGI.
- Deduction
- $32,200
- Taxable income
- $147,800
- Tax
- $21,940
- Deduction
- $35,000
- Taxable income
- $145,000
- Tax
- $21,324
Itemizing $35,000 saves this couple $616, because only the $2,800 above the standard deduction counts, taxed at 22%.
The new senior, tips and overtime deductions
The 2025 tax law (the One Big Beautiful Bill Act) added three deductions you can take whether or not you itemize, for 2025 to 2028:
- Senior deduction: $6,000 for each person 65 or over, reduced by 6% of AGI above $75,000 ($150,000 joint).
- Tips: up to $25,000 of qualified tips in jobs that customarily get tips.
- Overtime: up to $12,500 ($25,000 joint) of the overtime premium, the extra half in time and a half.
The tips and overtime deductions shrink by $100 for each $1,000 of income above $150,000 ($300,000 joint), and married people filing separately cannot claim them. They lower income tax only, not Social Security or Medicare.
- Tax without the deduction
- $2,620
- Tax with it
- $1,420
- Saving
- $1,200
- Tax without the deduction
- $6,570
- Tax with it
- $5,620
- Saving
- $950
The overtime calculator works out your premium from your hours.
The 2026 tax brackets
| Rate | Single | Married filing jointly | Head of household |
|---|---|---|---|
| 10% | $0 to $12,400 | $0 to $24,800 | $0 to $17,700 |
| 12% | to $50,400 | to $100,800 | to $67,450 |
| 22% | to $105,700 | to $211,400 | to $105,700 |
| 24% | to $201,775 | to $403,550 | to $201,775 |
| 32% | to $256,225 | to $512,450 | to $256,225 |
| 35% | to $640,600 | to $768,700 | to $640,600 |
| 37% | above | above | above |
Each rate applies only to the income inside its band. Married filing separately uses the single bands up to the 35% band, which ends at $384,350. The tax bracket calculator shows your income split band by band.
Example: single, $75,000
- Wages$75,000
- Standard deduction−$16,100
- Taxable income$58,900
- 10% of $12,400$1,240
- 12% of $38,000$4,560
- 22% of $8,500$1,870
- Tax$7,670
- Withheld−$7,000
The tax is 10.2% of wages, even though the top dollars are taxed at 22%.
Child tax credit and other credits
A credit cuts your tax dollar for dollar, so it is worth more than a deduction of the same size. The child tax credit is $2,200 for each child under 17 with a Social Security number. Up to $1,700 per child is refundable: you can get it even if you owe no income tax, as long as you earned more than $2,500. Other dependents bring a $500 credit.
The credits fall by $50 for each $1,000 of AGI above $200,000 ($400,000 married filing jointly). Other credits, such as the earned income tax credit, education credits and the child and dependent care credit, are not in this calculator.
Example: a family of four
- Wages$120,000
- Standard deduction−$32,200
- Taxable income$87,800
- Tax before credits$10,040
- Child tax credit (2 × $2,200)−$4,400
- Tax$5,640
- Withheld−$6,000
A head of household earning $50,000 with one child has $25,850 of taxable income and $2,748 of tax before credits; the $2,200 credit cuts it to $548. With $1,500 withheld, the refund is $952.
Capital gains and dividends
Long-term gains (assets held more than a year) and qualified dividends sit on top of your other taxable income and are taxed at 0%, 15% or 20%. A single person with $80,000 of wages and a $10,000 long-term gain pays $8,770 on the wages and $1,500 (15%) on the gain, $10,270 in all. Short-term gains are taxed like wages. The capital gains tax calculator goes into the detail.
Self-employment income
Freelance, 1099 and gig profit pays income tax and self-employment tax (15.3% on 92.35% of profit). Half of the self-employment tax is an adjustment, and most sole proprietors also get the qualified business income (QBI) deduction of up to 20% of their business income.
- Self-employment tax$7,064.78
- QBI deduction$6,073.52
- Income tax$2,667.29
The self-employment tax calculator also works out your quarterly estimated payments.
Additional Medicare and investment taxes
Two surtaxes apply at higher incomes and are not indexed for inflation. The Additional Medicare tax is 0.9% of wages and self-employment income above $200,000 ($250,000 married filing jointly, $125,000 separately). The net investment income tax is 3.8% of the smaller of your investment income and your AGI above the same thresholds.
Retirees
A married couple, both 65 or over, with $60,000 of pension and IRA income get a $35,500 standard deduction ($32,200 plus $1,650 each) and a $12,000 senior deduction. Their taxable income is $12,500, and their tax is $1,250.
Social Security benefits
Up to 85% of Social Security benefits can be taxable, depending on your other income. Enter only the taxable part (box 6b of your 1040) as other income.
Effective rates at common incomes
| Wages | Single | Rate | Married jointly | Rate |
|---|---|---|---|---|
| $30,000 | $1,420 | 4.7% | $0 | 0.0% |
| $50,000 | $3,820 | 7.6% | $1,780 | 3.6% |
| $75,000 | $7,670 | 10.2% | $4,640 | 6.2% |
| $100,000 | $13,170 | 13.2% | $7,640 | 7.6% |
| $150,000 | $24,734 | 16.5% | $15,340 | 10.2% |
| $250,000 | $51,754 | 20.7% | $37,468 | 15.0% |
Effective federal rate for a single filer.
Ways to lower your tax
- Pre-tax retirement saving. $10,000 into a traditional 401(k) on $90,000 of wages cuts a single person’s tax from $10,970 to $8,770, saving $2,200.
- An HSA, if you have a high-deductible health plan: deductible going in, tax-free for medical costs.
- Hold investments over a year to get the lower long-term rates.
- Claim every credit: child, dependent care, education and the earned income credit.
- Bunch charity gifts into one year so you clear the standard deduction and can itemize.
Refund or balance due
Your refund is the tax withheld and paid in the year, plus any refundable credits, minus your total tax. If you owe $1,000 or more and paid in less than 90% of this year’s tax and less than 100% of last year’s (110% if your AGI was over $150,000), the IRS may add an underpayment penalty. To change your withholding for the rest of the year, update your W-4; the paycheck calculator shows what that does to each paycheck.
Key dates
- January 15, 2027Last 2026 estimated payment
- January 31, 2027Employers send W-2s; most 1099s due
- April 15, 20272026 returns and any balance due
- October 15, 2027Extended deadline (an extension gives more time to file, not to pay)
Choosing your filing status
Your status depends on your situation on December 31. Married couples can file jointly or separately; filing jointly almost always costs less, and some credits are not available separately. Head of household is for unmarried people who pay more than half the cost of a home for a qualifying person, and it brings a $24,150 standard deduction and wider low brackets than single. A surviving spouse with a dependent child can use the joint rates for two years after the year of death.
Common mistakes
- Comparing your tax with your bracket instead of your effective rate.
- Counting traditional 401(k) contributions twice: W-2 box 1 already leaves them out.
- Forgetting income with no withholding, such as interest, side work or a sale of shares.
- Claiming the overtime deduction on all overtime pay instead of only the extra half.
- Assuming an extension gives more time to pay. Interest and penalties run from April 15.
Documents you will need
- Form W-2 from each employer: wages in box 1 and federal tax withheld in box 2.
- Forms 1099: 1099-INT for interest, 1099-DIV for dividends, 1099-B for sales of investments, 1099-NEC and 1099-K for freelance and platform income, 1099-R for pensions and IRA withdrawals, SSA-1099 for Social Security.
- Form 1098 for mortgage interest and 1098-E for student loan interest, if you might itemize or claim the adjustment.
- Records of estimated payments you made during the year, and last year’s return for the safe-harbor figures.
Most of these arrive by January 31, 2027. Wait until you have them all before filing, because a missing form is the most common reason for an IRS letter months later.