What Is Tax Liability?

A federal tax liability is an amount that’s owed to the government in taxes. It can include income taxes on earnings and capital gains taxes on assets. Both are based on brackets, a percentage of the money earned, and brackets are determined b✱y various factors.

A liability can be owed by an individual, business, or other ent𓃲ity. It can be owed to a state or local tax authority as well as to the federal government.

You generally have a tax liability when you earn income or generate profits by selling an invesꦗt🍷ment or other asset. It’s possible to have no tax liability if you don’t meet the income requirements or brackets to file taxes.

Understanding Tax Liability

Federal, state, and local governments im♕pose taxes and use the money that’s raised to pay for services such as repairing roads, funding social programs, and maintaining a military.

Companies withhold 澳洲幸运5官方开奖结果体彩网:income taxes, 澳洲幸运5官方开奖结果体彩网:Social Security taxes, and 澳洲幸运5官方开奖结果体彩网:Medicare taxes from employees’ wages and send the money to the federal government to cover their tax liabilities.

𒊎 Your tax liability doesn’t just include your income and earnings in the current year. It factors in any past years for which taxes are owed. Any unpaid taxes from previous years are also added to your federal tax liability if back taxes are due.

How to Calculate Your Tax Liability

The most common federal tax liability for Americans is the tax on earned income. You can use the tax brackets and 澳洲幸运5官方开奖结果体彩网:standard deductions issued by the Internal Revenue Service (IRS) to get an ide🌄a of what yours will be for a given year.

The standard deductions for 2024 are:

• $14,600 for single filers
• $14,600 for married couples filing separately
• $21,900 for heads of households
• $29,200 for married couples filing jointly

Standard deductions for 2025 are:

• $15,000 for single filers
• $15,000 for married couples filing separately
• $22,500 for heads of households
• $30,000 for married couples filing jointly

These standard deduction amounts are subtracted from your total income, and you’re only taxed on the remaining balance. The amount you can deduct depends on your filing status. You also have the option of 澳洲幸运5官方开奖结果体彩网:itemizing your deductions instead of claiming the standard deduction, but you can’t do both. Many filers find that their standard deductions are larger than the amount of itemized deductions they’re eligible to claim.

Tax bracket income ranges are adjusted annually to keep pace with inflation, so they’re slightly more generous in 2025 than they were in 2024:

Imagine you're a single filer in 2024 earning $101,100 per year. After subtracting your standard deduction of $14,600, your taxable income is $86,500. You have no other deductions or income.

Since your taxable income is under $100,000, you must use the IRS tax tables to det𝔉ermine your federal tax liability, not the tax co꧅mputation worksheet.

According to the 2024 IRS tax tables, a taxable income of $86,500 corresponds to a federal tax liability of $14,089. This is your total tax owed before considering any back taxes or credits.

Now, imagine you’💦re earning $130,000 per year. After subtracting your standard deduction of $14,600, your taxable income is $115,400.

Because your taxab🤪le🃏 income is over $100,000, you use the IRS tax computation worksheet to calculate your tax liability.

The worksheet bre💛aks your income into brackets and applies the rates accordingly:

• 10% on the first $11,600: $11,600 x 10% = $1,160
• 12% on income between $11,601 and $47,150: ($47,150 - $11,600) = $35,550 x 12% = $4,266
• 22% on income between $47,151 and $100,525: ($100,525 - $47,150) = $53,375 x 22% = $11,742.50
• 24% on income over $100,526 up to $115,400: ($115,400 - $100,525) = 14,875 x 24% = $3,570

Add these amounts:

$1,160 + $4,266 + $11,742.50 + $3,570 = $20,738.50

Your federal tax liability for 2024 would be $20,738.50, before credits or any additional taxes.

Liability or Refund?

Now, you're earning $130,000 per year, and your W-4 resulted in your employer withholding $17🦋,000 in federal taxes. This isn’t enough to meet your federal tax liability of $20,738.50 when you file you🌸r Form 1040 individual tax return, so you’d owe $3,738.50 in taxes: $20,738.50 - $17,000 = $3,738.50.

The IRS would refun🍌d you $1,261.50 🧜if your W-4 resulted in your employer withholding $22,000 in federal taxes: $22,000 - $20,738.50 = $1,261.50.

How Capital Gains Are Taxed

You’ll owe taxes on the gain when you sell an investment, real estate, or any other asset for a gain. You can report it as a 澳洲幸运5官方开奖结果体彩网:capital loss if you sell it for a loss. 澳洲幸运5官方开奖结果体彩网:Capital gains are taxed in two ways. They’re either long-term or short-term. It’s a short-term capital gain if you hold💎 an asset for one year or less before selling it for a gain. It’s considered a long-term capital gain and is subject to the capit🤪al gains tax if you hold it for more than one year before selling it for a gain.

Capital gains thresholds similar to income tax brackets apply to long-term gains.

Assume you purchase 100 shares of XYZ common stock for $10,000 in 2019. You sell them five years later in 2024 for $18,000. The $8,000 gain is a taxable event. You held the stock for more than one year, so the gain is a long-term capital gain.

If you're a single filer with an 澳洲幸运5官方开奖结果体彩网:adjusted gross income of $65,400, your long-term capital gains tax rate is 15%. You'll owe 15% of your $8,000 gain in taxes, or $1,200, in♈ capital gains taxes. If you had sold the shares after holding them for one year or less, the $8,000 gain would be considered a short-term capital gain and taxed as ordinary income, increasing your taxable income for the year.

How to Reduce Your Tax Liability

Taxes can take a significant bite out of your take-home pay, but it’s something everyone has to live with. However, you can 澳洲幸运5官方开奖结果体彩网:reduce the amount of taxes you pay in several ways.

Deductions and Credits

You might qualify for other 澳洲幸运5官方开奖结果体彩网:deductions or credits. 澳洲幸运5官方开奖结果体彩网:Deductions reduce your taxable income and credits reduce the amount of tax you owe. Some 澳洲幸运5𝓀官方开奖结果体彩网:deductions you might be a𝓡ble to claim include:

• Business expenses
• Using your car for business purposes
• Using your home for business purposes
• Itemized deductions
• Education deductions
• Healthcare and health insurance deductions
• Investment deductions

Some available 澳洲幸运5官方开奖结果体彩网:tax credits include:

• Family and dependent credits
• Income and savings credits
• Homeowner credits
• Healthcare credits
• Education credits

Contribute to a Retirement Fund

Contributing to a retirement fund does more than help you save for and grow your 澳洲幸运5官方开奖结果体彩网:retirement nest egg. You can reduce your federal tax liability for years to come if you plan carefully. You can contribute a specific amount per year to your traditional 澳洲幸运5官方开ꦯ奖结果体彩网:individual retirement account (IRA), and this amount is tax deferred. You can contribute to a Roth IRA after you’ve paid taxes on that money.

Determine how much you believe you’ll be 澳洲幸运5官方开奖结果体彩网:taxed in retirement by projecting your income and withdrawals to lower your tax liability by contributing. A t𓆏raditional IRA can lower your total tax payments👍 if you’re in a higher tax bracket now that you will be in retirement because:

• Taxes are deferred to your retirement years.
• You’ll be in a lower bracket with less tax liability at that time.

A Roth IRA can lower your total tax payments if you’re sure you’ll be in a higher tax bracket after you retire and begin taking 澳洲幸运5官方开奖结果体彩网:withdrawals, because those withdrawals will be tax free.

The Bottom Line

Your federal tax liability is the amount of taxes you’ll owe on your 澳洲幸运5官方开奖结果体彩网:taxable income for the year. You’ll have some tax liability if yo𓆏u earn income.

Add all your income and subtract your standard deduction to figure out your taxable income. Then refer to the IRS tax brackets to find your tax liability. You might speak to a tax professional if the amount is 🗹more than you think you can handle, and the IRS offers a variety of payment plans if you’re really in a jam.

Correction—March 12, 2025: This article has been corrected to state that standard deduction amounts are subtracted from your total income, and to change the example of a sinꩲgle filer to an earned amount that would use the IRS tax computation worksheet.

Correction—May 26, 2025: This article has been corrected to re🐻flect the accurate federal tax ca🔯lculation for a single filer earning $101,000 in 2024.

Correction—May 26, 2025: Thi🧔s art🏅icle has been corrected to clarify that long-term capital gains are taxed separately from ordinary income and are not added to taxable income in the same way.