Determining Your Tax Refund

By Shannon C , last updated June 25, 2011

Determining your tax refund is not as challenging as you might assume after having to go through the exercise of having to actually prepare your taxes. For starters, there are a number of free, online tax refund calculators that you can use to estimate what your annual refund amount may be. If you wish to manually estimate your tax refund, the process is relatively easy to accomplish as long as you have a few basic pieces of information at your disposal.

How Your Tax Refund is Calculated at Tax Time

The method by which the Internal Revenue Service, or IRS, calculates the amount of tax money you still owe, or the amount of tax refund that is due you, is a simple matter of comparing the amount of taxable income you accrued during the last tax calendar year, comparing it with the amount of income tax you have already paid, and either charging you for or refunding to you the difference. This is done through the income reporting required by your employer or employers through W-2's and 1099 forms.

What You Will Need to Calculate Your Tax Refund Now

To calculate your estimated tax refund at any time during the year, you will need the same basic information that your employer uses to calculate the amount of income tax to withhold from your paycheck each month. You will need your total annual taxable income, your filing status, the amount of dependents you will be claiming, as well as any credits or income adjustments you may need to make, if applicable. You may also appreciate a calculator if you are not using one of the free online refund estimator programs.

How to Calculate Your Tax Refund

To begin, you will need to use the Internal revenue Service tax tables to determine your income tax bracket. Your income tax bracket is the percentage of your income, based on your filing status, that will be assessed against your income in taxes prior to any adjustments or credits you may be due. It is important in this process to remember that calculating your tax refund in early or mid-year will likely produce an estimate only. Next, you will multiply your total annual taxable income by the tax bracket percentage, and compare it to the amount your employer is withholding in taxes. If your employer withholds more than you must legally pay, this is the amount of tax refund you will be owed at year-end.

Here, too, you will need to factor in whether you are employed or self-employed. Self-employed individuals are required to monitor and pay out the full amount of taxes they owe, while employed individuals have to do less legwork because their employer withholds a percentage of their paycheck each month that is based on the W-4 that the employee fills out at the time of employment.

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