In this world, Benjamin Franklin said, “nothing is certain, except death and taxes.” And he was right—unless you make less than the standard deduction, (which is $13,850 for single filers in tax year 2023), every American has to file federal income taxes.
But doing your taxes shouldn’t feel like a choose-your-own adventure. Over the past few years, the IRS has taken steps to propel itself into the 21st century by transforming into a modernized and customer-focused entity.
This stemmed largely from funding increases under the Inflation Reduction Act, which was signed into law in 2022 by President Joe Biden.
The changes included everything from eliminating paper backlogs to making fewer unannounced house calls, as well as providing more online resources for taxpayers, such as tools that help you figure out your federal paycheck withholdings, whether you’re eligible for certain tax credits, and even when you’ll receive your tax refund.
In addition, beginning in tax year 2023, the IRS launched a free, direct-file tax filing program that’s designed to help Americans of all ages and income levels make doing their taxes easier — and error-free.
First, a few basics.
What is federal income tax?
American independence was born from a tax revolt—against Britain in the 1700s — but taxation quickly became a cornerstone of American democracy. Back then, there was no such thing as income tax, and the colonists didn’t receive any government services in return for their tax dollars; after the American Revolution, tax rates rose significantly on tariff items like alcohol and tobacco. By 1862, to help fund the Civil War, President Abraham Lincoln imposed taxes on the wealthiest Americans: a 3% tax on incomes greater than $600, and a 5% tax on incomes above $10,000.
In 1913, before the outset of World War I, the U.S. Congress passed the 16th Amendment, granting it the authority to collect income taxes from any source. It levied taxes from the paychecks of millions of American workers, which dramatically changed their ways of life.
Related: What is the standard deduction for 2023 and 2024? Has it increased?
Today, revenue from federal income taxes makes up 16.4% of U.S. GDP—and that’s a good thing, according to the World Bank, which states that tax-to-GDP ratios above 15% ensure healthy economies and reduce poverty.
If you’re wondering if federal income taxes are the same as FICA: They’re not. Both get deducted from your wages, but they go toward different things: FICA funds Social Security and Medicare programs, while your federal income tax dollars fund public services like the U.S. military, highway systems, law enforcement, and social and community development programs, to name a few.
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How do you file your federal income taxes?
Exactly how do you figure out what federal income taxes you owe? Start by gathering all of the information you need to fill out your tax forms. This includes your Social Security number or Individual Tax ID number, your bank account and routing numbers, the PIN you used if you e-filed your taxes last year, your current address, eligible expenses, and all of your wage documentation, such as your paycheck stubs, W-2 forms, and 1099s.
Then, follow these steps.
1. Know which tax bracket you’re in
The U.S federal income tax system is a progressive tax system. That means that as your income increases, the amount of taxes you pay also goes up. It groups these rates into seven categories, or brackets: 10%, 12%, 24%, 32%, 35%, and 37%.
- Income tax brackets are based on your filing status, which takes into account your marital status. The most common are single, married filing jointly, married filing separately, and head of household.
- Tax brackets are also based on your taxable income, which is also known as your adjusted gross income (AGI).
Due to rising inflation, the IRS made some big changes to 2023 tax brackets, adjusting income limits by 7%, which could put you in a lower tax bracket. That means you might have less taxes to pay in tax year 2023 (which are due April 15, 2024). The standard deduction also increased.
2024 brackets also saw some income adjustments, along with the standard deduction, but not by as much as they did in tax year 2023.
2. Add in credits and claim deductions
Now it’s time for credits and deductions. What’s the difference between the two?
- A tax credit is a specific dollar amount you subtract from the tax you owe.
- A tax deduction is an eligible expense that you can use to lower your taxable income.
The IRS offers a number of tax credits – here are a few:
- Low- and middle-income workers are eligible for the Earned Income Tax Credit (EITC)
- The Child Tax Credit gives a tax break to parents and caretakers of children under age 17
- There are also credits available if you pay for childcare, or if you adopt a child
- Students are eligible for education credits, such as the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC)
- Credits are available to savers who contribute to an IRA or an employer-sponsored retirement plan
- There are Clean Vehicle Tax Credits and Home Energy Tax Credits
- Eligible taxpayers could receive a Premium Tax Credit for their health insurance premiums
When it comes to tax deductions, taxpayers can choose between claiming the standard deduction, which is a specific dollar amount based on your tax filing status, or itemizing deductions. In the event that your itemized deductions rival the standard deduction, the IRS encourages people to go with the standard deduction—it’s less paperwork for everyone.
3. File your taxes
The most important thing to remember when filing your taxes is to get them in before the deadline—or file an extension. The deadline to file 2023 taxes is April 15, 2024.
There are a number of paid accounting software programs you could use to file your taxes, but why shell out your own, hard-earned money when many tax filing programs are completely free of charge?
- The IRS-sponsored Free File Program is a partnership between the IRS and authorized tax software providers, like ezTaxReturn.com. Eligible taxpayers have an adjusted gross income of $79,000 or less. (Higher earners are welcome to use IRS Fillable Forms although support is limited.)
- New in 2024 is the IRS’ Direct File Pilot Program. This service lets taxpayers upload their returns directly to the IRS website. At the moment it’s limited to residents of AZ, CA, FL, MA, NH, NY, NV, SD, TN, TX, WA, and WY.
- Prefer to prepare your taxes in person? The Volunteer Income Tax Assistance (VITA) program offers free tax prep from trained volunteers. This program is available to taxpayers who make less than $64,000 per year. People with disabilities and non-English speakers are also eligible.
Whatever you do, make sure you are filing your taxes online—the IRS stresses that refunds from paper returns take much longer to reach their destination—about a month, on average, although as of October 2023, the agency still had a backlog of 1.9 million paper returns.
And regardless of whether you opted for a paper check or direct deposit, you can check the status of your refund 24/7 through the IRS’ convenient Where’s My Refund app.
4. Make sure your paycheck withholdings are correct
Know how much tax will be taken out of your paycheck? You don’t have to wait until tax season to figure out if your withholdings are correct. So much depends on the answers you provided in your W-4 form, so be sure to keep it up-to-date with your employer as your life changes. The IRS even has a withholding estimator app that does the heavy lifting for you—that way, you’ll avoid an unpleasant tax bill the next time you file your taxes.
