Americans are often frustrated with how complicated the income tax laws, making it an ordeal to get your returns prepared at tax time. Most taxpayers, however, have fairly simple returns, because they get most of their income from their job earnings and take standard deductions. It can be useful to estimate your federal tax so that you'll know whether you'll owe money or get a refund. With the help of this income tax calculator, you can estimate your 2016 tax and get information on your tax bracket and effective tax rate. Let's look more closely at this federal tax calculator and how you can use it.


* Calculator is for estimation purposes only, and is not financial planning or advice. As with any tool, it is only as accurate as the assumptions it makes and the data it has, and should not be relied on as a substitute for a financial advisor or a tax professional.

Why most tax returns are simpler than you'd think

Most of the complex provisions of the income tax laws deal with situations that the majority of taxpayers don't face. If the bulk of your earnings come from your salary at work, with perhaps a little bit coming in from bank account interest or investment income, then your tax return will usually be simple. Moreover, most people don't have enough in potential deductions to warrant itemizing, instead taking the standard deduction.

As a result, even a simple calculator can often give you a good estimate of your tax liability. It won't be able to capture every single credit or deduction that you're entitled to receive, and so you shouldn't take any calculator's results as being definitive. However, you can get use a calculator and get a good first read on what to expect at tax time early next year.

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How this federal tax calculator works

To use this calculator, you'll have to answer just a few simple questions. Enter your filing status and total gross income, along with any investment income you received or retirement contributions you made. Then, consider whether you'll take itemized deductions or just take the standard deduction. Finally, enter how many dependents you're entitled to claim, as well as the number of children you have. Once you do that, the calculator will give you an estimate of your tax bill.

For instance, take a married couple with $40,000 in gross income and one child. The couple doesn't itemize deductions and contributes $1,000 to a traditional IRA.

When you run this scenario through the calculator, you can see how it works. The IRA contribution reduces adjusted gross income to $39,000, and the $12,600 standard deduction and $12,150 in personal exemptions for three family members takes taxable income down to $14,250. In the 10% bracket, that produces tentative tax of $1,425, and the $1,000 child tax credit takes the estimate down to $425.

What this calculator can't do

However, there are some limitations to this basic calculator. For instance, in the example above, this couple would be entitled to additional tax breaks. A Saver's Credit would provide a 20% credit on the $1,000 contributed to the IRA, reducing the tax bill by an additional $200. In addition, the Earned Income Tax Credit would apply here, providing an additional $770 in credits. Because the EITC is refundable, this couple could get a refund check from the IRS even though the couple's tax liability is zero.

By their nature, any tax calculator will be less than perfect. When you consider how complex software packages like TurboTax are in order to unearth every possible deduction, credit, or other tax break, it's easier to understand why calculators can only provide rough estimates.

That said, using a federal tax calculator to help you estimate what you'll owe in taxes can be helpful for your planning. Just keep in mind the things that most calculators will miss, and you'll be in a better position to know how reliable the estimate you get will be.