Your tax refund is calculated by subtracting the amount of taxes withheld from your paychecks throughout the year. If the taxes withheld exceeds the amount you owe to the IRS, you will receive a tax refund. It’s simple as that.
Calculating it on your own is as easy as bringing a couple of figures together and subtracting your total taxes withheld from you. This can be seen on your W-2 Form and the W-4 Form you submit to your employer plays the majority of the role here. If you claimed multiple allowances, this means less tax withheld, and if you claimed zero, more taxes withheld from your paycheck.
How can I estimate my tax refund?
You could easily calculate how much taxes withheld from you before the tax season starts by using the W-2 Wage and Tax Statement your employer files. Since your employer will have time till January 31st, it may take a while to reach you.
So you may not get it before the tax season starts but at the end of each year, you can take a look at your paychecks and see how much tax was withheld from you throughout the year. Once you know the exact or the round figure, you can subtract that from the money you owe to the IRS.
You can calculate how much you owe by simply finding which tax bracket you fall into by subtracting all the deductions you claim from your income. This will give you your Adjusted Gross Income and from there on, you can find the percentage of your tax rate and voila! you now know how much you’ve gotta pay in taxes
Tax credits to increase tax refund
Also, you may be eligible for credits. Unlike deductions which reduce your taxable income, credits cut the amount you owe to the IRS. So if you have a child, you’re likely to be eligible for Child Tax Credit. It will lower the amount of money you owe to the IRS by $1,500.
Credits also can increase your tax refund but not to the same degree as it would cut how much you owe to the IRS. It is usually half of the credit amount but it differs from credit to credit.