Module 1 · Tax Formulas and Credits · Lesson 8 of 10

Tax due or refund

Putting the whole formula together, and why a big refund isn't a prize.

In this lesson · about 12 minutes

  • Calculate the final balance due or refund
  • Explain why some clients owe even with a paycheck
  • Run the full formula with a calculator

  9. If tax after credits is more than what was paid in, the difference is due. If more was paid in than owed, the IRS refunds the excess.

    Lines 34–37

After credits and prepayments are subtracted from the gross tax liability, one of two things is left:

  • Tax due: the client's tax is more than what they paid in. They pay the difference by the filing deadline (April 15 for most people) to avoid interest and penalties.
  • Refund: the client paid in more (through withholding, estimated payments and refundable credits) than they owed. The IRS returns the extra after it processes the return.

A refund is not a bonus. It is the client's own money, lent to the government for free during the year. A balance due is not a penalty either: it simply means too little was paid in during the year.

Worked example

Leo has two jobs and owes

Leo is single and worked two jobs: $52,000 and $40,000. Each employer withheld as if it were his only job, $10,400 in total.

    Step 0 of 6

    Calculator

    Full tax formula calculator

    Every line of the formula, live. Change any number and watch the bottom line move.

    $
    $
    $

    Leave at 0 to use the standard deduction.

    $
    $
    $
    Gross income$58,400
    Above-the-line deductions$4,200
    AGI$54,200
    Standard deduction$15,750
    Taxable income$38,450
    Tax ratesTop bracket. Effective rate 11.4%.12%
    Gross tax liability$4,375.50
    Nonrefundable credits used$0.00
    Refundable credits$0
    Prepayments$5,100
    Refund$724.50

    Federal, tax year 2025, simplified for learning. Not tax advice.

    Check your understanding0 of 2 correct

    Question 1

    1.Gross tax is $7,000. Credits are $1,000 (nonrefundable). Withholding was $6,500. What is the result?

    Question 2

    2.A freelancer with no withholding wants to avoid owing a large amount in April. What helps most?

    Quiz score: 0 of 2

    Tip: answer every quiz question correctly first.

    For learning only, not tax advice. Figures are federal for tax year 2025 and simplified; phase-outs and special rules are not all shown. Check current IRS instructions before preparing a return.