How the result is calculated
Nothing about a refund is a bonus. Through the year your employer withholds federal income tax from each paycheck on the strength of your Form W-4, and in spring the return works out what the tax really was. If the withholding, and any credits the IRS pays out regardless of tax, come to more than that, the difference comes back to you; if less, you owe it. The estimate here walks the same lines as Form 1040.
taxable incomeAGI − deduction − Schedule 1-A
tax after creditstax − nonrefundable credits
paymentswithholding + estimated payments + refundable credits
refundpayments − tax after credits
- AGI
- wages and other income less adjustments such as IRA and HSA contributions
- deduction
- the standard deduction for your filing status, or your itemised total if larger
- Schedule 1-A
- tips, overtime premium, car loan interest, the senior deduction and, from 2026, gifts to charity
- nonrefundable
- education credits, then the child tax credit and the credit for other dependents, never below zero
- refundable
- the earned income credit, the additional child tax credit and 40% of the American opportunity credit
Two details make the result match a real return to the dollar. The first is the Tax Table: the IRS does not want you to compute tax on your exact income, so below $100,000 it prints the tax for every $50 row, worked at the middle of the row and rounded to the dollar. The calculator generates the table the same way, and its tests check it against printed rows. The second is the EIC Table, built on the same principle with $50 rows of earned income.
Worked example
| Item | Amount | How it is obtained |
|---|---|---|
| Adjusted gross income | $60,000 | wages only, no adjustments |
| Standard deduction | $16,100 | single filer, 2026 |
| Taxable income | $43,900 | 60,000 − 16,100 |
| Tax Table row | $43,900 to $43,950 | midpoint 43,925 |
| Tax | $5,023 | 1,240 + 12% × (43,925 − 12,400), rounded |
| Withheld | $6,000 | Form W-2 box 2 |
| Refund | $977 | 6,000 − 5,023 |
| Item | Amount | How it is obtained |
|---|---|---|
| Taxable income | $0 | 20,000 less the 23,625 standard deduction |
| Child tax credit used against tax | $0 | there is no tax to set it against |
| Additional child tax credit | $2,625 | least of 4,400 unused, 2 × 1,700 and 15% × (20,000 − 2,500) |
| Earned income credit | $7,152 | two children, inside the plateau from 17,880 to 23,350 |
| Withheld | $500 | |
| Refund | $10,277 | 500 + 2,625 + 7,152: almost all of it refundable credits |
Reading the result
The headline is the refund, in green, or the amount you owe, in red, with the payments and tax it is the difference of. The line-by-line list follows the order of the form: income down to taxable income, then tax and the credits that reduce it, then the payments. Refundable credits sit with the payments because that is what they are to the IRS: money paid to you whether or not you owe tax. If you enter the paychecks left this year, the calculator also shows how much more or less each should withhold for the refund to come out at zero.
What changes the result
Withholding, more than anything
For most employees the refund is set in January, when the Form W-4 goes in. Ticking the Step 2 box for a second job, entering children at Step 3 or adding a flat amount at Step 4(c) all move the withholding, and so the refund, by much more than any deduction found in April. The paycheck calculator shows what each choice withholds.
Credits that phase in and out
The earned income credit rises with your first dollars of earnings, holds steady across a plateau and then falls as income grows: with one child it is lost at 15.98 cents per extra dollar, with two or more at 21.06 cents, which is why a raise near the top of that range can cut a refund by more than the tax on the raise. The child tax credit is $2,200 a child in 2025 and 2026, but only the refundable part, up to $1,700 a child and 15% of earnings over $2,500, reaches someone with no tax to absorb it.
The new Schedule 1-A deductions
From 2025 tips, the premium half of overtime pay, interest on a new car loan and a $6,000 allowance for each person aged 65 or over come off after AGI, whether or not you itemise. Each has its own ceiling and phase-out, and married people filing separately lose most of them.
What is not included
- State returns. A state refund is separate and depends on state withholding.
- Business and investment income rules. Self-employment tax, the lower rates on long-term gains and qualified dividends, and the net investment income tax.
- The alternative minimum tax and the premium tax credit for marketplace insurance.
- Other credits, such as the child and dependent care credit, the saver's credit and energy credits.
- Underpayment penalties, which can apply if too little was paid during the year.
Using the result
Use the estimate early, not just in April: while there are paychecks left, a new Form W-4 can still fix a large refund or a large bill. If you expect to owe, paying more through withholding before the year ends is usually treated as paid evenly through the year, which an estimated payment is not. Keep the result beside your W-2 when you file, and if your software's figure differs, compare line by line: a missed credit or a different deduction is almost always the cause.