How Your IRS Income Tax Refund is Calculated

Many US taxpayers look forward to receiving their tax refunds during the tax season. However, if you have never prepared your own tax return, it can be mysterious as to how the refund amount you receive is determined. The good news is the process is easy.

tax refund calculator

Once your taxable income has been determined, a tax table is used to figure out how much income tax you have for the year. Then, that number is compared to the amount of money that you paid throughout the year.

If you paid more than your tax, you will receive a refund for the amount over. However, if you did not pay enough, you will be expected to pay money rather than receive money back.

Withholdings Explained

When you work for an employer, you have a portion of your salary withheld from your paycheck. The government does this so they can be 100% positive that they are going to get their money. They understand that individuals run through money, and if they take it before you have the chance to spend it, they will have nothing to worry about.

The amount that you have to pay is based on an estimation of the amount of taxes you will owe when the end of the year arrives. Your employer bases the amount off your estimated annual income and your exemptions. It is very important that you keep your W-4 form up to date so you can have the correct amount of money being withheld from your paycheck each pay period.

How Withholdings Are Determined

You may or may not be aware of which tax bracket percentage you are in. If you are aware, you also may have noticed that your employer withholds more money than the tax bracket requires too. However, this is because they also factor in social security, Medicare, and state taxes.

Social security taxes take up 6.2% of your earnings, while Medicare taxes takes 1.45%. Therefore, before any money is taken out for income taxes, you have already had 7.65% of your income withheld.

Determining Your Refund Amount

The refund amount that you will receive is determined by analyzing the income tax and the federal income tax that was withheld throughout the year. In the event that you had too much federal income taxes withheld from your paycheck, you will receive a tax refund during tax season. Here is a free tax refund calculator.


Each year your refund is determined based on your w2 amount and how much you paid in federal taxes from your paycheck throughout the year. The amount you owe is determined when you file taxes, and if you have paid too much, you will receive a refund.

Additionally, the majority of the money that you have taken from your salary is not going to paying taxes. Instead, it has to go to state taxes, Medicare tax, and Social Security tax. In addition, keep in mind if you have a premium through your employer, money could be taken out for that, which makes the amount of money coming out of your paycheck even higher.

Student Tax Credits to Take Advantage of at Tax Time

If you or someone you claim on your tax return is going to college this fall, some of your costs could save you money when tax season kicks off. You may be eligible for a tax credit on your federal tax return. Therefore, today, we are providing you with tax credits and tips for back to school season that will benefit you during tax time.

American Opportunity Tax Creditstudent tax credits

This tax credit is worth up to $2,500 annually for eligible students. However, the American Opportunity credit can only be claimed during the student’s first four years of higher education. 40% of the tax credit is refundable. This means that you could get up to $1,000 of the credit back as a refund if you are eligible to receive it.

Lifetime Learning Credit

This tax credit is worth up to $2,000. It does not come with limitations like the American Opportunity Tax Credit, which means you can claim it as long as you are an eligible student.

One Credit per Student

When claiming tax credits, keep in mind, you are only eligible to claim one credit per year. However, if the student happens to be your dependent and you have more than one dependent that qualifies, you are able to claim one credit for one student and the other credit for the other student.

Qualified Expenses

Qualified expenses are used to determine your credit. Qualified expenses include things such as the cost of paying your tuition, fees, and other student-related expenses. For more information on the rules for each credit, visit the IRS website.

Eligible Educational Institutions

Eligible schools are those that offer education after high school. Most colleges and universities make the cut, and some vocational and post-secondary schools qualify. If you are unsure if your school qualifies, ask your school or see if your school is listed on the U.S. Department of Education’s Accreditation database.

Form 1098-T

Usually, you will receive Form 1098-T from your school by February 1st. This form reports your qualified expenses to the IRS. The amount shown can differ from what you paid. For example, your textbook costs may not appear on the form.

However, you are able to include those costs, usually, when you figure out your credit. Additionally, keep in mind that you can only claim the qualified expenses that you paid for during the tax year you are filing for.

Non-Resident Alien

If you are in the US on an F-2 Student Visa, you will generally be treated as a nonresident alien when it comes to filing your taxes. To find out more about this status, visit the U.S. Immigration Support website. To learn more about restrictions, you may experience visit IRS Publication 519.

How to Claim Your Student Tax Credits

Remember, when you file your taxes online, you don’t need to know which schedules to fill out. We’ll ask you simple questions about your life and put your answers on all the appropriate forms.

You’ll get step-by-step instructions through your taxes, expert help when you need it, and every deduction and credit that applies to you. We help you claim every student tax credit possible.

What is the Earned Income Credit (EIC) and How to Qualify

The Earned Income Tax Credit, also known as the EIC and EITC, is a tax credit for individuals who only make an annual income that is considered low or moderate. Your filing status and your income determine the amount of the credit.

If you are able to qualify for the credit, your federal taxes will be lower, and you may get a nice tax refund. However, to qualify, you have to file a tax return even if you are not legally required to do so.earned income credit eic

General EIC Requirements

  • Your income must be within the EITC income limits
  • You and your qualified dependents have to have a social security number that is valid
  • You cannot file with the filing status married filing separately
  • Your investment income cannot exceed $3,650
  • You have to be a citizen/resident alien for the entire year
  • Your earned income has to come from self-employment or employment.

If you
file your taxes online, they will help you to claim the earned income credit based on the information that you enter into the system

Claiming the EIC If You Do Not Have Dependents

If you do not have any dependents, you may still be eligible for the credit. Those who have dependents will receive more; however, some people qualify without dependents.

Which Dependents Qualify?

The IRS uses qualifying children when it comes to determining the amount you will receive for the credit. In order for a child to be considered a qualifying child for this tax credit, they must be a relative, have a social security number, and meet the age, residency, and relationship criteria’s.

This means they have to be your son, daughter, foster child, stepbrother/sister, adopted child, or a descendant from them. In addition, they have to be under the age of 19 unless they are a student, then they have to be under the age of 24.

If the child is disabled, there is no age limit. Furthermore, you cannot claim more than three qualifying children.

Are There Age Limits Regarding EIC Eligibility

If you and your spouse file married filing jointly, you could qualify as long as you are over 25 and under 65 if you do not have any qualifying children. If you have a qualifying child, there is no age limit.

Keep in mind that if you file your taxes online, you only have to answer a few simply questions to see whether you can claim the earned income credit. This means that you will not have to know the current tax laws, and you will be able to get your maximum tax refund.

Lifetime Learning Tax Credit – Expenses That Qualify

The Lifetime Learning Credit is for those who attend college classes. It allows them to get a 20% tuition expenses credit with a phase-out limit of $2,000 in tax credits on their first $10,000 of lifetime learning credittuition expenses.

This credit is for you, your spouse, or your dependents that are in an eligible school, and you had to pay the expenses for them. It differs from the American Opportunity Credit because you do not have to be in the first four years of undergraduate classes. People who have taken only one class can qualify to claim the lifetime learning credit.

Educational Institutions that Qualify

Accredited schools are considered eligible. Additionally, post-secondary schools and vocations schools qualify too. If the school accepts federal student aid programs via the US Department of Education, you can claim the Lifetime Learn tax credit for the tuition that you paid.

Expenses That Qualify

Expenses that are eligible for this credit include the fees and tuition that were paid for schooling. However, anything outside of that such as health, insurance, room and board, books, etc. are not eligible for the credit.

Additionally, you have to be the person who is responsible for covering the cost. You also have to reduce your qualifying expenses by the amount of assistance you received from various things, such as grants or reimbursements. If you borrowed money, such as from a student loan, you do not have to include this.

Who Is Eligible for This Credit

If you have a dependent child in college, you can claim this credit on your federal tax return. However, if your college student is not considered your dependen,t they are the ones who claim the credit on their federal tax return. In the event that you do not have a dependent but you pay their college expenses, you are not eligible for the tax credit.

Taxpayers could get $4,000 if they earned under $65,000 and under $130,000 for couples. However, if your income is between $65,000 and $80,000 or $130,000 and $160,000 for couples the maximum amount you will receive is $2,000.

Income Limitations on the Credit

  • To claim the full credit, your MAGI, modified adjusted gross income must be $66,000 or less or $132,000 or less if you are married and filing jointly.
  • If your MAGI is between $56,000 and $66,000 (between $112,000 but less than $132,000 for married filing jointly), you receive a reduced amount of the credit.
  • If your MAGI is over $66,000 ($132,000 for joint filers), you cannot claim the credit.

MAGI, for most people, is the amount of AGI, adjusted gross income, shown on your tax return. On Form 1040A, AGI is on line 22 and is the same as MAGI. If you file Form 1040, AGI is on line 38.

How to Claim the Lifetime Learning Credit

If you file your taxes online, they will make sure you get the maximum amount of money possible when claiming the lifetime learning credit. This results in you receiving your largest refund ever!

How to File Corrected W-2 Forms

Sometimes employers may provide you with an incorrect W-2 and later they have to go back tax statement W-2and fix something, which results in them sending you a W-2C.

Reasons to Want a Correct W-2

There are numerous reasons that you may want a corrected W-2. Some of the most common reasons include, but are not limited to, incorrect name, incorrect social security number, or incorrect dollar amounts.

When you notice an error, you have to go back to your employer and ask them to issue you a corrected W-2. Once the errors have been fixed, your employer will provide you with a correct W-2, also known as W-2C, and send a copy to the Social Security Administration.

Filing Taxes With a W-2C

A W-2C contains the original reported information as well as the correct information. You will see two columns that read, “Previously reported” and “correct information”. The correct information column is the information that you will want to be sure that you put on your tax return.

If you have already, imported incorrect information on your tax return through you are going to have to go in manually and make the edits to insure that nothing holds up you receiving your tax refund.

Make sure that before you submit your return you have compared the information with the correct information column to insure your return is accurate.

E Filing With W-2C or Substitute W-2

The IRS allows taxpayers to e file with a W-2C; however, they do not allow taxpayers to e file with a substitute W-2. In the event that you have to file with a substitute W-2, you will have to print it out and mail it to the IRS with your federal tax return. In the event that your estimations are wrong, you will have to file an amended return.


Corrected W-2s can be confusing when you have to go in and change information. However, if you import your W2 online, they have tax experts to help you through the process if you find yourself stuck.

Not only will your tax return be accurate and you will be backed by audit protection; but you can also get a TurboTax discount coupon to use when you file. If you ever find yourself in doubt during tax season, know that Turbo Tax has your back!