Figuring Your Tax

Your income tax is based on your taxable income. After you figure your income tax, subtract your tax credits and add any other taxes you may owe. The result is your total tax. Compare your total tax with your total payments to determine whether you are entitled to a refund or owe additional tax.

This section provides a general outline of how to figure your tax. You can find step-by-step directions in the instructions for Forms 1040EZ, 1040A, and 1040. If you are unsure of which tax form you should file, see Which Form Should I Use? in chapter 1.

Tax. Most taxpayers use either the Tax Table or the Tax Rate Schedules to figure their income tax. However, there are special methods if your income includes any of the following items.

• Capital gains (see chapter 17).
• Lump-sum distributions (see chapter 11).
• Farm income (see Schedule J (Form 1040), Farm Income Averaging ).
• Investment income over $1,400 for children under age 14 (see chapter 32).

Credits. After you figure your income tax, determine your tax credits. This chapter does not explain whether you are eligible for these credits. You can find that information in chapters 33 through 38 and your form instructions. See the following table for credits you may be able to subtract from your income tax.

Some credits (such as the earned income credit) are not listed above because they are treated as payments. See Payments, later.

There are other credits that are not discussed in this publication. These include the following items.

• General business credit, which is made up of several separate business-related credits. These generally are reported on Form 3800, General Business Credit, and are discussed in chapter 4 of Publication 334, Tax Guide for Small Business.
• Empowerment zone employment credit, which is for certain employers whose employees work and live in an empowerment zone. See Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities, and the instructions for Form 8844, Empowerment Zone Employment Credit.
• District of Columbia first-time homebuyer credit, which is for certain persons who buy a main home in the District. See the instructions for Form 8859, District of Columbia First-Time Homebuyer Credit.
• Credit for fuel from a nonconventional source, which is for the person who sold the fuel. See the instructions for line 50 of Form 1040 and section 29 of the Code.

Other taxes. After you subtract your tax credits, determine whether there are any other taxes you must pay. This chapter does not explain these other taxes. You can find that information in other chapters of this publication and your form instructions. See the following table for other taxes you may need to add to your income tax.

Another tax you may have to pay, the alternative minimum tax, is discussed later in this chapter.

There are other taxes that are not discussed in this publication. These include the following items.

1. Self-employment tax. You must figure this tax if either of the following applies to you (or your spouse if you file a joint return):
   1. You were self-employed and your net earnings from self-employment were $400 or more, or
   2. You had church employee income of $108.28 or more.

   See the instructions for Schedule SE (Form 1040) and Publication 533, Self-Employment Tax.

2. Recapture taxes. You may have to pay these taxes if you previously claimed an investment credit, a low-income housing credit, a mortgage interest credit, a qualified electric vehicle credit, or an Indian employment credit. See the instructions for line 57 of Form 1040.
3. Section 72(m)(5) excess benefits tax. If you are (or were) a 5% owner of a business and you received a distribution that exceeds the benefits provided for you under the qualified pension or annuity plan formula, you may have to pay this additional tax. See Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans).
4. Uncollected social security and Medicare tax on group-term life insurance. If your former employer provides you with more than $50,000 of group-term life insurance coverage, you must pay the employee part of social security and Medicare taxes on those premiums. The amount should be shown in box 13 of your Form W-2 with codes M and N.
5. Tax on golden parachute payments. This tax applies if you, as a key employee, received an "excess parachute payment" (EPP) due to a change in a corporation’s ownership or control. See the instructions for line 57 of Form 1040.
6. Tax on accumulation distribution of trusts. This applies if you are the beneficiary of a trust that accumulated its income instead of distributing it currently. See the instructions for Form 4970, Tax on Accumulation Distribution of Trusts.
7. Additional tax on MSAs. If amounts contributed to, or distributed from, your medical savings account do not meet the rules for these accounts, you may have to pay additional taxes. See Publication 969, Medical Savings Accounts (MSAs), and Forms 8853, Medical Savings Accounts and Long-Term Care Insurance Contracts, and 5329, Additional Taxes Attributable to IRAs, Other Qualified Retirement Plans, Annuities, Modified Endowment Contracts, and MSAs.

Payments. After you determine your total tax, figure the total payments you have already made for the year. Include credits that are treated as payments. This chapter does not explain these payments and credits. You can find that information in other chapters of this publication and your form instructions. See the following table for amounts you can include in your total payments.

Another credit that is treated as a payment is the credit for federal excise tax paid on fuels. This credit is for persons who have a nontaxable use of certain fuels, such as diesel fuel and kerosene. It is claimed on line 64 of Form 1040. See Publication 378, Fuel Tax Credits and Refunds, and Form 4136, Credit for Federal Tax Paid on Fuels.

Refund or balance due. To determine whether you are entitled to a refund or owe additional tax, compare your total payments with your total tax. If you are entitled to a refund, see your form instructions for information on having it directly deposited into your financial account instead of receiving a paper check.

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