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The tax code provides several ways to control your tax bill through deductions and credits. Tax deductions allow you to reduce your taxable income, and tax credits allow you to directly reduce your tax liability.
When you make income from a job, you can often reduce your taxable income by contributing to an employer-sponsored retirement plan or your own individual retirement account (IRA). You may also have a high deductible health plan through your employer with access to a health savings account (HSA) or flexible spending account (FSA).
All of these accounts allow you to contribute pretax dollars to invest or hold in cash for saving or for certain expenses. As a result, these contributions lower your taxable income and save you money on your tax bill.
If you have dependents, you may qualify for the child tax credit, a partially refundable credit means to lower the cost of raising a child. This credit, worth up to $2,000 for 2023 and 2024, lowers your tax bill dollar for dollar.
For your 2021 tax return, the Child Tax Credit is expanded by the American Rescue Plan raising the per-child credit to $3,600 or $3,000 depending on the age of your child. The credit is also fully refundable for 2021. To get money into the hands of families faster, the IRS will be sending out advance payments of the 2021 Child Tax Credit beginning in July of 2021.
Almost everyone qualifies for the standard deduction or itemized deductions that reduce your taxable income. These are often the largest deductions available to you. Refer to item 6 below for information on which one might be best for you.
Self-employed workers and business owners may have more opportunities to save on their tax bills, but employees still have plenty of savings opportunities available. As an employee, you can deduct contributions made to IRAs, HSAs and FSAs when preparing your Form 1040.
For employees, contributions made to your 401(k) or other employer-sponsored retirement plan during the year will not need to be deducted on your tax return. Instead, these dollars have already been taken out of your wages as shown on your Form W-2.
Further, you can deduct student loan interest if you meet certain income criteria as well as home mortgage interest, state and local taxes and more.
If you have a side hustle, work as an independent contractor, or own a small business, you can deduct a lot of the costs related to running and maintaining your business. You have access to deductions for your home office, self-employment taxes, supplies, equipment, depreciation, health and business insurance, utilities and much more.
The United States uses a progressive tax system, meaning as you earn more income, your income falls into a higher marginal tax bracket. The U.S. has seven marginal tax brackets with the lowest beginning at 10% on taxable income above $1 and the highest at 37% on taxable income above $578,125 for single filers and $693,750 for married couples who file jointly. Your marginal tax rate is the tax rate of the tax bracket that your last taxed dollar falls in. For example, if in 2023 your taxable income was $525,000 then your marginal tax rate would be 35% because this amount falls in the 35% bracket.
Your effective tax rate represents the total percentage of your taxable income that goes toward income taxes. The most straightforward way to calculate your effective tax rate is to determine your taxable income and then calculate your total tax bill. From there, you divide the total tax by your taxable income to get your effective tax rate.
All things being equal, a tax credit is often preferable to a tax deduction. Tax credits reduce your tax liability dollar for dollar while tax deductions lower your taxable income. For example, if you prepare your taxes and have a total tax bill of $10,000, a $1,000 tax credit would reduce your bill by that amount.
If you had a $1,000 tax deduction and earned $50,000 in taxable income, your income tax liability wouldn’t decrease by $1,000. Instead, your taxable income would now be $49,000. Depending on your tax bracket, that means you would save anywhere from $0 to $370 as compared to $1,000 from a tax credit.
Each year, the IRS allows you to deduct unreimbursed expenses for qualifying medical expenses if they exceed 7.5% of your adjusted gross income (AGI). These expenses can come from:
How much you can deduct depends on your income and whether you itemize your deductions. For example, if your AGI is $100,000 and you itemize your deductions, you can deduct any unreimbursed medical expenses in excess of 7.5% of your AGI, or $7,500 (7.5% of $100,000). If you had $10,000 in unreimbursed qualifying expenses, you can deduct $2,500 ($10,000 – $7,500).
Before the tax reform in 2018, you may have wondered whether you should itemize your deductions or simply claim the standard deduction. That decision got a lot easier after the 2017 Tax Cuts and Jobs Act passed. You typically don’t itemize if the standard deduction saves you more on your tax bill.
The standard deduction nearly doubled from 2017 to 2018, making it harder to justify itemizing your deductions. In 2023, the standard deduction comes to $13,850 for single taxpayers and $27,700 for married taxpayers filing jointly. Even so, you should calculate your itemized deductions and compare them to the standard deduction each year to get the most out of the tax savings available to you. For 2024, these amounts increase to $14,600 and $29,200, respectively.
Yes, but an actual copy of your Form W-2 is only available if you submitted it with a paper tax return:
You can get a wage and income transcript, containing the Federal tax information your employer reported to the Social Security Administration (SSA), by visiting our Get Your Tax Record page. Refer to Transcript Types and Ways to Order Them and About Tax Transcripts for more information.
You can also use Form 4506-T, Request for Transcript of Tax Return. Check the box for Form W-2, specify which tax year(s) you need, and mail or fax the completed form. Most requests will be processed within 10 business days from the IRS received date.
Note: The IRS may be able to provide wage and income transcript information for up to 10 years. However, current processing tax year information may not be complete until the earnings are reported. This transcript doesn’t include any state or local tax information reported by your employer to SSA on Form W-2. If you need W-2 information for retirement purposes, you should contact the SSA at 800-772-1213.
Copy
If you e-filed your tax return or you didn’t attach your Form W-2 to your paper return, then use one of the transcript options above. Otherwise, you’ll need to contact your employer or SSA for a copy.
The quickest way to obtain a copy of your current year Form W-2 is through your employer. Your employer first submits Form W-2 to SSA; after SSA processes it, they transmit the federal tax information to the IRS.
If you can’t get your Form W-2 from your employer and you previously attached it to your paper tax return, you can order a copy of the entire return from the IRS for a fee. Complete and mail Form 4506, Request for Copy of Tax Return along with the required fee. Allow 75 calendar days for us to process your request. We will waive the fee for taxpayers impacted by a federally declared disaster.
You can file Form 1040-X, Amended U.S. Individual Income Tax Return electronically with tax filing software to amend tax year 2020 or later Forms 1040 and 1040-SR, and tax year 2021 or later Forms 1040-NR. If amending a prior year return originally filed on paper, then the amended return must also be filed on paper. See Form 1040-X, Amended U.S. Individual Income Tax Return, Frequently Asked Questions for more information. You still have the option to submit a paper version of the Form 1040-X and should follow the instructions for preparing and submitting the paper form.
Although these forms are called information returns, they serve different functions.
Employers use Form W-2, Wage and Tax Statement to:
Payers use Form 1099-MISC, Miscellaneous Information and/or Form 1099-NEC, Nonemployee Compensation to:
