Follow the money from your total income down to your final refund or amount owed. Every step explained in plain English.
This is everything you earned during the year from all sources—before any deductions or adjustments. It's the starting point for calculating your tax.
Your AGI is your total income minus specific "above-the-line" deductions. This is a crucial number because many tax benefits are based on your AGI.
This is the amount that's actually subject to federal income tax. You get here by subtracting either the standard deduction or itemized deductions from your AGI.
This is your total tax liability for the year—what you owe the government based on your taxable income, minus any non-refundable credits, plus any additional taxes.
These are amounts already paid toward your tax bill or credits that can generate a refund even if you owe no tax. This total is compared to your Total Tax.
The final answer! Compare your Total Payments to your Total Tax. If you paid more than you owe, you get a refund. If you paid less, you have a balance due.
A single taxpayer with W-2 wages, taking the standard deduction
The U.S. uses a progressive tax system. You don't pay 22% on all your income—only on the portion in that bracket. Your "effective" rate is lower than your "marginal" rate.
Non-refundable credits can only reduce your tax to $0. Refundable credits (like EIC) can generate a refund even if you owe no tax—they're essentially cash back.
Most taxpayers take the standard deduction because it's simpler and often larger. Only itemize if your mortgage interest, state taxes, and charity exceed the standard amount.
Many credits and deductions phase out based on your AGI. Lowering your AGI with adjustments (HSA, IRA) can unlock additional tax benefits.
If you're self-employed, you pay both the employee AND employer share of Social Security/Medicare (15.3%). This is separate from income tax.
Your refund or amount owed has nothing to do with how much tax you "really" paid. It's just the difference between what was withheld and what you actually owe.
Now that you understand the flow, explore our detailed guides for each section of Form 1040.