Information on Brackets and What Determines Your Federal Refund
For U.S. taxpayers, tax time can be dreaded or anticipated depending on whether you are expecting to owe money or receive a refund. For taxpayers who are expecting a refund, the amount of your refund can depend on a variety of factors. Your filing status and income will determine your tax bracket while exemptions, deductions and credits can lower your tax obligation or provide you with an additional refund amount.
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Withholding
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Each year, all employees must fill out an IRS Form W-4 which tells your employer how much taxes should be withheld each pay period. The amount withheld is based on how many dependents you claim, your filing status and the amount you earn that pay period. If you claim fewer dependents than you actually have, your employer will likely withhold more in taxes than you actually owe which will increase your refund at tax time. Conversely, if you claim more dependents that you legally have, your employer may not withhold enough in taxes and you may owe money at tax time.
Exemptions/Dependents
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The number of dependents you can legally claim will directly effect both your filing status as well the amount of income you are taxed on, thereby directly impacting your refund. For example, if you have a dependent, you may qualify to file as head of household which will allow you to earn more money while remaining in a lower tax bracket. In addition, you may deduct a certain amount for each dependent off of your gross income before your tax liability is calculated.
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Tax Bracket
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The tax bracket you fall into will directly determine the amount of taxes you pay. As a general rule, single taxpayers and married taxpayers who elect to file separately move into a higher tax bracket quicker than married filing jointly or head of household filers. The amount you may earn before moving up in a tax bracket is subject to change each year. As of publication, the tax brackets include a 10 percent, 15 percent, 25 percent, 28 percent , 33 percent and 25 percent bracket. The more income you make, the higher tax bracket you fall into and the more taxes you will pay.
Credits
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Credits can also provide you with a tax refund. A number of different tax credits are available to taxpayers. Some of the more popular credits include the earned income credit and the child and dependent care credit. If you paid someone to care for a dependent while you worked, you may receive a credit for some of that expense. In addition, if you worked, but did not earn over a certain amount of money which changes each year, you may qualify for an earned income credit. The earned income credit can actually allow you to qualify for a refund for more than you paid in withholding during the course of the year.
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