Understanding your Tax Return – Series 2 of 2

Taxable Income is your overall, or gross, income reduced by all allowable adjustments, deductions and exemptions.  As the US Tax system uses progressive taxation with tax brackets starting at 10 percent and raising to 39.6 percent for the wealthiest taxpayers, the lower your taxable income the better.

Tax Liability is how much you owe in taxes.

Tax Credits are used to reduce Tax Liability.  Tax credits are more valuable than tax deductions because they directly cut the amount of tax you owe, rather than reducing the amount of taxed income.  However, once your tax liability is $0, they cannot be used.

Refundable Credits are the same as tax credits, except they are still eligible for refund when your tax liability is $0.  Meaning you will still get a refund, even if you owe no tax.

Withholding is the amount withheld for each time you are paid, paid in from previous year, or paid in as an estimate for current year.  It is the most common of all Refundable Credits.

-         If you are NOT required to file, but had Federal and/or State withholding, the only way to get a refund is to file a return.