How Your Refund Is Figured
A refund isn't a bonus from the IRS. It's the difference between what you paid in during the year and what you actually owe. Your employer withholds federal income tax from each paycheck based on your Form W-4. When you file, your real tax is worked out from your full-year income, deductions and credits. If more was withheld than you owe, you get the difference back.
Refundable credits are the exception, and they're why some people get back more than was withheld. The earned income credit and the refundable part of the child tax credit are paid to you even when your tax is zero.
A married couple with $60,000 in wages and two children under 17, who had $2,000 withheld, works out like this for 2026:
- Taxable income: $60,000 less the $32,200 standard deduction = $27,800.
- Income tax from the brackets: $2,840.
- Child tax credit: $4,400 available. $2,840 wipes out the tax, and $1,560 of the rest is refundable.
- Earned income credit: $1,237, partly phased out at their income.
- Refund: $2,000 withheld + $1,237 + $1,560 = $4,797.
New Deductions That Lower Your Tax
Four deductions added by the One Big Beautiful Bill Act apply to tax years 2025 through 2028. You claim them on Schedule 1-A whether you take the standard deduction or itemize.
| Deduction | Limit | Starts shrinking above |
|---|---|---|
| Qualified tips | $25,000 | $150,000 ($300,000 joint) |
| Overtime premium | $12,500 ($25,000 joint) | $150,000 ($300,000 joint) |
| Car loan interest | $10,000 | $100,000 ($200,000 joint) |
| Age 65 or older | $6,000 per person | $75,000 ($150,000 joint) |
A deduction lowers taxable income, so it saves your tax rate times the amount, not the full amount. A single server earning $38,000 including $9,000 in tips pays $1,300 in 2026 income tax with the tips deduction and $2,380 without it, a difference of $1,080.
The rules are narrower than the names suggest. The overtime deduction covers only the premium, the extra half in time-and-a-half, not the whole overtime paycheck. Tips must come from an occupation on the IRS list of tipped jobs. Car loan interest counts only for a new vehicle assembled in the U.S., bought after 2024 for personal use. Married couples must file jointly for the tips, overtime and senior deductions. None of them reduce Social Security or Medicare tax.
2026 Earned Income Credit
The earned income credit is the largest refundable credit for workers with low or moderate income. It grows with each dollar earned up to a maximum, stays flat, then phases out. Investment income over $12,200 rules it out, and workers without a qualifying child must be 25 to 64.
| Qualifying children | Maximum credit | No credit from (single, head of household) | No credit from (joint) |
|---|---|---|---|
| None | $664 | $19,540 | $26,820 |
| One | $4,427 | $51,593 | $58,863 |
| Two | $7,316 | $58,629 | $65,899 |
| Three or more | $8,231 | $62,974 | $70,244 |
Income limits apply to both earned income and AGI. The IRS publishes the 2026 credit table with the 2026 Form 1040 instructions; the calculator uses the same midpoint method the IRS uses to build it, which reproduces every amount in the 2025 table.
Common Deductions the Calculator Limits for You
Several deductions have caps or income limits that are easy to miss. Enter what you paid and the calculator applies the 2026 rules:
| Deduction | 2026 rule |
|---|---|
| Student loan interest | Up to $2,500; phased out between $85,000 and $100,000 of income ($175,000 to $205,000 joint) |
| State and local taxes | Capped at $40,400, shrinking above $505,000 of income but not below $10,000 |
| Medical and dental expenses | Only the amount over 7.5% of AGI |
| Cash gifts to charity | If you itemize, only the amount over 0.5% of AGI; if you don't, up to $1,000 ($2,000 joint) |
Student loan interest and other adjustments lower your income whether or not you itemize. Mortgage interest, state and local taxes, medical expenses and larger gifts help only if they add up to more than your standard deduction, and the calculator uses whichever is larger.
When Your Refund Arrives
The IRS says to allow about three weeks after you e-file and six weeks or more for a paper return. Returns that claim the earned income credit or the additional child tax credit are held by law until mid-February, and the hold covers the whole refund, not just the credits. Choosing direct deposit is the fastest way to receive it.
Getting a Different Result Next Year
A big refund means more was withheld than you needed to pay, money you could have had in each paycheck instead; a balance due means too little was withheld. Both are fixed with a new Form W-4. Use the paycheck calculator to see how a change in withholding shows up in each check, and the income tax calculator to compare your federal and state tax by bracket.
Frequently Asked Questions
How is a tax refund calculated?
A refund is what you paid in during the year, plus refundable credits, minus your total tax. What you paid in is the federal income tax withheld from your paychecks and any estimated payments. Refundable credits, mainly the earned income credit and up to $1,700 per child of the child tax credit, are paid to you even when they're more than the tax you owe.
Why is my refund different from last year?
A refund changes when either your tax or your withholding changes. Common reasons: a raise or second job without more withholding, a child turning 17 and moving from the $2,200 child tax credit to the $500 credit for other dependents, a change in filing status, income rising into the earned income credit phase-out, or new deductions for tips, overtime, car loan interest or seniors lowering your tax.
Do I have to file a return to get the earned income credit?
Yes. The earned income credit and the refundable part of the child tax credit are paid only through a filed tax return, even if your income is low enough that you would not otherwise have to file.
Is overtime pay tax-free now?
Only part of it, and only for federal income tax. For 2025 through 2028 you can deduct the premium part of overtime, the extra half in time-and-a-half, up to $12,500 ($25,000 on a joint return). The deduction shrinks above $150,000 of income ($300,000 joint). Social Security and Medicare taxes still apply, and your state may still tax it.
Can I take the tips or overtime deduction with the standard deduction?
Yes. The deductions for tips, overtime, car loan interest and seniors are claimed on Schedule 1-A, on top of either the standard deduction or itemized deductions. Married couples must file jointly to claim the tips, overtime and senior deductions.
How much student loan interest can I deduct?
Up to $2,500 a year, whether or not you itemize. For 2026 the deduction shrinks once income passes $85,000 ($175,000 on a joint return) and is gone at $100,000 ($205,000). Married people filing separately can't take it. Your lender reports the interest you paid on Form 1098-E.
Should I itemize or take the standard deduction?
Take whichever is larger; the calculator compares them for you. Itemizing usually pays off only with a mortgage, high state and local taxes, or large gifts to charity. For 2026 the standard deduction is $16,100 single and $32,200 joint. Starting in 2026, people who don't itemize can still deduct up to $1,000 of cash gifts to charity ($2,000 joint).
When will I get my refund?
The IRS says to allow about three weeks after you e-file, and six weeks or more for a paper return. By law, the IRS can't issue a refund before mid-February if the return claims the earned income credit or the additional child tax credit, and the hold applies to the whole refund.
Is a federal tax refund taxable?
No. A federal income tax refund is a return of your own money, not income. A state income tax refund can be taxable on your federal return, but only if you itemized and deducted state income taxes the year before.