After you have figured your income and deductions as explained in Parts One
, your next step is to figure your tax. This chapter discusses:
- The general steps you take to figure your tax,
- An additional tax you may have to pay called the alternative minimum tax, and
- The conditions you must meet if you want the IRS to figure your tax.
Your income tax is based on your taxable income. After you figure your income tax and any alternative minimum 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.
Most taxpayers use either the Tax Table or the Tax Computation Worksheet to figure their income tax. However, there are special methods if your income includes any of the following items.
- A net capital gain. (See chapter 16.)
- Qualified dividends taxed at the same rates as a net capital gain. (See chapters 8 and 16.)
- Lump-sum distributions. (See chapter 10.)
- Farming or fishing income. (See Schedule J (Form 1040), Income Averaging for Farmers and Fishermen.)
- Investment income over $1,900 for certain children. (See chapter 31.)
- Parents' election to report child's interest and dividends. (See chapter 31.)
- Foreign earned income exclusion or the housing exclusion. (See Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, and the Foreign Earned Income Tax Worksheet in the Form 1040 instructions.)
After you figure your income tax and any alternative minimum tax (discussed later), determine your tax credits. This chapter does not explain whether you are eligible for these credits. You can find that information in chapters 32 through 37 and your form instructions. See the following table for credits you may be able to subtract from your income tax.
| CREDITS |
| For information on: || See |
|Alternative motor vehicle||37|
|Alternative fuel vehicle refueling |
|Child and dependent care||32|
|Child tax credit||34|
|Credit to holders of tax credit bonds||37|
|Elderly or disabled||33|
|Electric vehicle credits||37|
|Prior year minimum tax||37|
|Retirement savings |
Some credits (such as the earned income credit) are not listed above because they are treated as payments. See Payments
There are other credits that are not discussed in this publication. These include the following credits.
- 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 and renewal community employment credit. See Publication 954, Tax Incentives for Distressed Communities. Also see Form 8844.
- District of Columbia first-time homebuyer credit. See Form 8859.
- Credit for alcohol used as fuel. See Form 6478.
- Renewable electricity, refined coal, and Indian coal production credit for electricity and refined coal produced at facilities placed in service after October 22, 2004, and Indian coal produced at facilities placed in service after August 8, 2005. See Form 8835, Part II.
- Work opportunity credit. See Form 5884.
- Credit for employer social security and Medicare taxes paid on certain employee tips. See Form 8846.
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.
| OTHER TAXES |
| For information on: || See |
|Additional taxes on qualified retirement plans and IRAs||10, 17|
|Advance earned income credit payments||36|
|Household employment taxes||32|
|Recapture of an education credit||35|
|Social security and Medicare tax on wages||5|
|Social security and Medicare tax on tips||6|
|Uncollected social security and Medicare tax on tips||6|
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.
- 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).
- Your net earnings from self-employment from other than church employee income were $400 or more. The term "net earnings from self-employment" may include certain nonemployee compensation and other amounts reported to you on Form 1099-MISC, Miscellaneous Income. If you received a Form 1099-MISC, see the Instructions for Recipients on the back. Also see the instructions for Schedule SE (Form 1040), Self-Employment Tax; and Publication 334, Tax Guide for Small Business.
- You had church employee income of $108.28 or more.
- Recapture taxes. You may have to pay these taxes if you previously claimed an investment credit, first-time homebuyer credit, a low-income housing credit, a mortgage interest credit, a new markets credit, a qualified electric vehicle credit, a credit for employer-provided child care facilities, an Indian employment credit, or other credits listed in the instructions for Form 1040, line 60. For more information, see the instructions for Form 1040, line 60.
- 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 Tax on Excess Benefits in chapter 4 of Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans).
- 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 12 of your Form W-2 with codes M and N.
- Tax on golden parachute payments. This tax applies if you received an "excess parachute payment" (EPP) due to a change in a corporation's ownership or control. See the instructions for Form 1040, line 60.
- 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.
- Additional tax on HSAs or MSAs. If amounts contributed to, or distributed from, your health savings account or medical savings account do not meet the rules for these accounts, you may have to pay additional taxes. See Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans; Form 8853, Archer MSAs and Long-Term Care Insurance Contracts; Form 8889, Health Savings Accounts (HSAs); and Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.
- Additional tax on Coverdell ESAs. This applies if amounts contributed to, or distributed from, your Coverdell ESA do not meet the rules for these accounts. See Publication 970, Tax Benefits for Education, and Form 5329.
- Additional tax on qualified tuition programs. This applies to amounts distributed from qualified tuition programs that do not meet the rules for these accounts. See Publication 970 and Form 5329.
- Tax on insider stock compensation from an expatriated corporation. You may owe a 15% excise tax on the value of nonstatutory stock options and certain other stock-based compensation held by you or a member of your family from an expatriated corporation or its expanded affiliated group in which you were an officer, director, or more-than-10% owner. For more information, see the instructions for Form 1040, line 60.
- Additional tax on income you received from a nonqualified deferred compensation plan that fails to meet certain requirements. This income should be shown in Form W-2, box 12, with code Z, or in Form 1099-MISC, box 15b. For more information, see the instructions for Form 1040, line 60.
- Interest on the tax due on installment income from the sale of certain residential lots and timeshares. For more information, see the instructions for Form 1040, line 60.
- Interest on the deferred tax on gain from certain installment sales with a sales price over $150,000. For more information, see the instructions for Form 1040, line 60.
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.
| PAYMENTS |
| For information on: || See |
|Child tax credit (additional)||34 |
|Earned income credit||36 |
|Estimated tax paid|| 4 |
| Excess social security |
and RRTA tax withheld
|Federal income tax withheld|| 4 |
|First-time homebuyer credit||37 |
|Government retiree credit||37 |
|Health coverage tax credit||37 |
|Making work pay credit||37 |
| Regulated investment company |
| Refundable credit for|
prior year minimum tax
| 37 |
|Tax paid with extension|| 1 |
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 Form 1040, line 70. See Form 4136, Credit for Federal Tax Paid on Fuels. taxmap/pub17/p17-164.htm#en_us_publink1000174221
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 one or more of your accounts instead of receiving a paper check.