Research allowable tax deductions, exemptions and credits.

The amount of federal and state taxes taken from your paycheck depends on:

  • Current income tax rates
  • Your gross income
  • Your filing status (single, married filing separately, married filing jointly or head of household)
  • The dependents and allowances you claim on your W-4 form
  • Work benefit programs (e.g., qualified retirement contributions) that lower or defer taxes

Allowable deductions, exemptions and credits reduce the federal income taxes you pay. Deductions like charitable donations, student loan interest, health care costs and educational costs reduce your taxable income. Exemptions can reduce or eliminate your obligation to pay taxes. Credits like the child/dependent care credit, education credit or earned income credit are dollar-for-dollar reductions in the taxes you owe.

Deductions

Deductions are standard or itemized. You can choose the one that provides a greater reduction in your taxes.

  • Take a standard deduction, which is a set amount, to lower your taxable income based on your filing status. The standard deductions based on filing status for 2020 are:
    • Single or married filing separately: $12,400
    • Married filing jointly: $24,800
    • Head of Household: $18,650
  • Use itemized deductions if you have mortgage interest, high health care costs, charitable contributions or property taxes that add up to more than the standard deduction.

Exemptions

Exemptions reduce your tax bill in a similar way to a deduction. They take away from the taxable income you have. If you are not a dependent of someone else, you can claim an exemption for yourself, your spouse (if you file jointly) and dependents under age 19 living with you more than half the year. Some people also can claim adult dependents.

Credits

Tax credits related to your family, income, homeownership status, health care and education reduce the amount of taxes you owe. Credits are a one-to-one reduction of the taxes you owe and are subtracted directly from your taxes.

As a student, research the Earned Income Tax Credit, Child Credit and Lifetime Learning credits Links to an external site., which offer significant savings for students and young families.

Estimate your federal taxes for this year using the IRS app Links to an external site..

 

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