Income tax is a percentage of the money you earn that goes to federal and state governments

Income tax is money taken from your paycheck or owed at the end of the year based on how much you earned. The federal government and most states each collect their own income tax. The amount you owe depends on how much money you made, your filing status (single, married, head of household), and whether you have dependents. Your employer usually takes tax out of each paycheck automatically — this is called withholding. If too much is withheld, you get a refund when you file your tax return. If too little is withheld, you owe money.

Income tax is separate from other taxes you pay, like sales tax or property tax. It only applies to income — money you earn from a job, self-employment, investments, or other sources. Not all income is taxed the same way, and not everyone has to file a tax return, depending on how much they earned.

Key Takeaways

  • Federal income tax rates range from 10% to 37% depending on your income level and filing status, and most states also charge their own income tax.
  • Your employer withholds tax from your paycheck based on a form called a W-4, which you fill out when you start a job.
  • You must file a federal tax return if your income exceeds a certain threshold, which varies by age, filing status, and type of income.
  • Self-employed people pay both the employee and employer portion of Social Security and Medicare taxes, totaling 15.3% on top of income tax.
  • Tax refunds happen when you overpaid during the year; the IRS holds that money until you file and they calculate what you actually owed.

How federal income tax brackets work

The federal government uses a progressive tax system, meaning the tax rate increases as your income increases. The rates are organized into brackets. If you are single and earned $50,000 in 2024, you do not pay 22% on all of it — you pay 10% on the first portion, then 12% on the next portion, then 22% only on the amount above a certain threshold. The exact thresholds change each year.

The seven federal tax brackets for 2024 range from 10% to 37%. Which bracket applies to you depends on your taxable income — the amount left after you subtract deductions. Most people take the standard deduction, which is a flat amount the IRS lets you subtract before calculating tax. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. Some people instead itemize deductions (listing specific expenses like mortgage interest or charitable donations), but only if that total is higher than the standard deduction.

What gets withheld from your paycheck

When you start a job, you fill out a W-4 form that tells your employer how much tax to withhold from each paycheck. The form asks about your filing status, number of dependents, and other income. Based on your answers, your employer calculates a withholding amount and removes it before you receive your pay. This is not a loan — it is a prepayment toward the tax you will owe at the end of the year.

Your paycheck stub shows the withholding under labels like "Federal Income Tax Withheld" or "FIT". You also see withholding for Social Security (6.2% of your pay) and Medicare (1.45% of your pay). These are separate from income tax and go to different government programs. If you have multiple jobs, work part-time, or have a spouse who works, your withholding might be too high or too low. You can adjust your W-4 at any time by giving a new form to your employer.

Who must file a tax return

You must file a federal tax return if your income exceeds a threshold set by the IRS. The threshold depends on your age, filing status, and type of income. For 2024, a single person under 65 must file if they earned more than $14,600 in wages. A married couple filing jointly must file if they earned more than $29,200 combined. If you are 65 or older, the threshold is higher. Self-employed people must file if they had net earnings of $400 or more.

Even if you earned less than the threshold, you should file if you had income tax withheld from your paychecks — you may be owed a refund. You should also file if you are claiming the Earned Income Tax Credit (EITC), a refundable credit for lower-income workers. Filing is free through the IRS Free File program if your income is below a certain level, or you can pay a tax preparer or use tax software.

State income tax and how it differs

Most states charge their own income tax on top of federal tax. Nine states have no state income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only investment income). State tax rates and brackets vary widely. Some states have a flat rate — everyone pays the same percentage regardless of income. Others use progressive brackets like the federal system. A few states tax only certain types of income.

When you file your federal return, you also file a state return (unless you live in a no-income-tax state). Your employer withholds state tax separately from federal tax based on a state W-4 form. If you moved during the year or worked in a state different from where you live, you may need to file in multiple states. State tax deadlines are usually the same as the federal deadline, which is April 15 (or the next business day if April 15 falls on a weekend).

Self-employment tax and how it works

If you are self-employed — meaning you work for yourself rather than for an employer — you pay both the employee and employer portions of Social Security and Medicare taxes. This is called self-employment tax, and it totals 15.3% (12.4% for Social Security and 2.9% for Medicare). You also owe federal income tax on your net self-employment income. You calculate this on Schedule C, a form you attach to your tax return, by subtracting business expenses from your gross income.

Self-employed people do not have an employer to withhold tax, so they usually make estimated tax payments four times a year (quarterly) to avoid owing a large amount at tax time. These payments are due April 15, June 15, September 15, and January 15. You calculate estimated tax using Form 1040-ES. If you underpay, you may owe a penalty. If you overpay, you get a refund or credit when you file your annual return.

Tax credits and deductions that lower what you owe

A tax deduction reduces your taxable income — the amount you subtract before calculating tax. The standard deduction is the most common one. Other deductions include mortgage interest, property taxes, charitable donations, and student loan interest. A tax credit is different: it reduces the tax you owe dollar-for-dollar. A $1,000 credit saves you $1,000 in tax, regardless of your income level.

Common credits include the Child Tax Credit ($2,000 per child under 17), the Earned Income Tax Credit (up to $3,995 for single filers with no children, more with children), and the American Opportunity Credit for education expenses. Some credits are refundable, meaning if the credit is larger than the tax you owe, you get the difference as a refund. Others are nonrefundable, meaning they can only reduce your tax to zero. The IRS website and tax software can help you determine which credits you may be able to claim.

What happens if you do not pay or file

If you owe tax and do not pay by the deadline, the IRS charges interest and penalties. Interest accrues daily at a rate set quarterly (currently around 8% per year). Penalties include a failure-to-pay penalty (0.5% per month of unpaid tax) and a failure-to-file penalty (5% per month if you do not file, up to 25%). If you cannot pay in full, you can request a payment plan or an offer in compromise (settling for less than you owe). The IRS also has hardship programs for people facing financial difficulty.

If you do not file at all, the IRS can file a return for you using only income they know about (like W-2s from employers), which usually results in a higher tax bill and missed credits you could have claimed. If you owe back taxes from multiple years, the IRS can garnish your wages, seize your bank account, or place a lien on your property. If you are behind on taxes, contacting the IRS or a tax professional early is better than waiting — the longer you wait, the more interest and penalties accumulate.

Frequently Asked Questions

Can I claim someone as a dependent if they live with me?

Not automatically. A dependent must be a relative (or in some cases a non-relative living with you for the entire year), have less than $4,700 in income for 2024, and receive more than half their financial support from you. You can only claim a child as a dependent if you have legal custody or the child's parent signs a form releasing the exemption to you.

What is the difference between a W-2 and a 1099?

A W-2 is issued by an employer and shows wages and tax withheld. A 1099 is issued by a client or business that paid you and means you are self-employed or a contractor — no tax was withheld, and you owe self-employment tax plus income tax. If you receive a 1099, you must file a tax return even if the amount is small.

Why do I owe taxes if my employer already withheld money?

Withholding is an estimate based on the W-4 you filled out. If your circumstances changed (you got married, had a child, took a second job), your withholding may be too low. You can adjust your W-4 at any time, or you can wait and owe the difference when you file.

Do I have to file if I made very little money?

If your income is below the filing threshold for your age and status, you do not have to file. However, you should file if you had tax withheld — you will likely get a refund. You should also file if you are claiming the Earned Income Tax Credit, which can result in a refund even if you owe no tax.

What if I made a mistake on my tax return?

You can file an amended return using Form 1040-X within three years of the original filing date. If the IRS finds an error, they will contact you and either send a refund or bill you for additional tax owed. You do not need to wait for them to find it — amending early avoids penalties.