Calculating Tax Refund or Amount Owed


or amount owed

once tax liability has been determined

we must consider the final three items

in income tax preparation tax credits

other taxes and payments the following

formula is used to complete the tax

preparation process note when the result

is a positive number it's the amount of

tax owed when the result is a negative

number it indicates a tax overpayment by

that amount when an overpayment occurs

the taxpayer has the option of receiving

a refund or applying the amount of the

overpayment to the next year's estimated

tax tax credits our dollar-for-dollar

subtractions from tax liability a tax

credit of $1 saves a full dollar in

taxes whereas a tax deduction of $1

results in less than a dollar of savings

the amount depends on the tax rate

some examples are credits for child and

dependent care expenses credits for

elderly or disabled and foreign tax

credits in addition to the tax liability

from the tax table or tax computation

worksheet other taxes may also be due

these taxes are added to the tax

liability some examples would be

self-employment taxes and Social

Security and Medicare taxes on tip

income payment calculation involves

subtracting payments such as employees

federal income tax withheld by employers

estimated tax payments made quarterly

excess Social Security and Medicare paid

and the Earned Income Credit

here are the steps to calculating the

tax refund or amount owed step 1

subtract total credits from the tax

liability step 2 add the total of other

taxes to the tax liability to get total

tax step 3

if total payments are greater than total

tax a refund of the difference is due if

total payments are less than total tax

the difference is the tax owed here's an

example after preparing her taxes for

last year Emily james determined that

she had a tax liability of five thousand

three hundred and twenty six dollars and

owed other taxes of five hundred and

seventy five dollars

Emily was entitled to a credit for

elderly care of one thousand four

hundred and twelve dollars if her

employer withheld five hundred and ten

dollars from her paycheck each month is

Emily entitled to a refund or does she

owe additional taxes how much steps one

and two calculate the total tax owed

which is equal in this case to five

hundred three hundred and twenty six -

1412 plus five hundred and seventy five

for a total of four thousand four

hundred and eighty-nine dollars

step 3 calculate the total payments

compared to taxes owed where total

payments equal five hundred and ten

dollars times 12 which equals six

thousand one hundred and twenty dollars

so her refund will be six thousand one

hundred and twenty minus four thousand

four hundred and eighty nine for a total

of one thousand six hundred and thirty

one dollars