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

The tax formula, start to finish

The nine lines every individual federal return follows.

In this lesson · about 12 minutes

  • Name the nine steps of the individual federal income tax formula in order
  • Explain the difference between gross income, AGI and taxable income
  • Follow one client from their paycheck to their refund

Every individual federal return, from a teenager's first W-2 to a business owner with rental properties, follows the same path. Forms, schedules and worksheets look complicated, but each of them feeds one line of a short formula. Once you know the formula, you always know where a number goes and what it changes.

Here is the whole formula. Click any line to see what it means.

Worked example

Maya's return, line by line

Maya is single. She earned $58,000 in wages at a dental office and $400 of interest on savings. She put $3,000 in a traditional IRA and paid $1,200 of student loan interest. Her employer withheld $5,100 of federal income tax. She has no credits. Tax year 2025.

    Step 0 of 9

    Key terms

    Say the meaning to yourself, then tap a card to check.

    Check your understanding0 of 3 correct

    Question 1

    1.Which number do the tax brackets apply to?

    Question 2

    2.Withholding from a paycheck is subtracted at which step?

    Question 3

    3.What comes directly after AGI in the formula?

    Quiz score: 0 of 3

    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.