Federal Income Tax

If you're like most people, you were unpleasantly surprised when you received your first real paycheck from a job. You were probably already aware that you would have federal income taxes cut from your check. What you weren't expecting was that it would be so much.

The Taxes You Pay

When you first start working, your employer asks you to fill out a lot of paperwork. One of these documents that you fill out is the Federal W-4 form. The information you put on this form will dictate how much you are cut in federal income taxes each paycheck. On the form, you indicate your filing status, single or married, and the number of personal exemptions you have, like dependents. Each personal exemption reduces the amount of tax withheld from your paycheck.

You might have to change your W-4 within the year if your filing status changes. For example, if you go from single to married, or the other way around. You might also change your W-4 if your number of dependents changes. After filing your income tax for the year, you should change your W-4 if you owe more than $100 in income tax or you receive a large income tax refund.

Most people are fairly excited to receive a tax refund, especially a large one. Think about this, the only reason you receive a tax refund is you paid too much in taxes during the year. Wouldn't it be better to increase your take home pay throughout the year than to give the government an interest-free loan?

Taxable Income and Deductions

Not all income can be taxed. Taxable income is the amount of income that you pay taxes on. For example, interest made from municipal bonds isn't taxable, neither are child support payments or worker's compensation.

Tax deductions can also reduce your taxable income. Each person gets an automatic, or standard, deduction. For single people in 2006, it's $5,150. For married couples who file jointly, the couple's standard deduction is $10,300.

Certain types of expenses can be itemized to reduce taxable income if the total amount of these deductions is greater than the standard deduction. The following are examples of expenses that can be itemized: mortgage insurance and property insurance, charitable contributions, educational expenses, expenses related to job searches, and investment and tax-related expenses.

The standard deduction is typically better for those individuals who have a simple financial life or for those whose itemized deductions do not exceed the amount of the standard deduction.

Tax Returns

When the tax year comes to an end, your employers are required to send you a W-2 form in the mail. The form contains your wages and taxes withheld for the year. Between the time you receive the W-2 form and April 15, you will have to file income taxes. You can file income taxes yourself using the forms or a tax program or hire a professional tax preparer to file your income taxes for you.

After receiving your tax returns, the IRS employees enter the information and send a refund to you, if necessary. For faster processing of your tax return, you can use the E-file or TeleFile method.