While every taxpayer's financial situation is different, there is a basic formula that must be followed in order to calculate one's tax liability. Notice that there is a distinct difference between tax liability and a taxpayer's ultimate refund or amount of tax due.

Every paycheck you receive has a number of different taxes withheld. This results in your net pay being lower than your gross pay. An example follows:

Liz works all year for a software company and earns a salary of $60,000 per year. She is paid on the 5th and the 20th of each month. She receives the following pay stub for her June 5, 2018 payday:

Software Systems, Inc EARNINGS STATEMENT Employee Name: Social Security Number: Employee ID: Check Number Pay Period Pay Date Liz Pearl XXX-XX-1234 12121212 36856 5/16/2018-05/31/2018 6/5/18 Income Rate Hours Current Total Deductions Current Total Year-to-Date Gross Wages 2,500.00 FICA Medicare Tax 36.25 398.75 FICA Social Security Tax 155.00 1,705.00 Federal Withholding Tax 176.00 1,936.00 State Withholding Tax 64.00 704.00 YTD Gross YTD Deductions YTD Net Pay Total Deductions Net Pay 27,500.00 4,743.75 22,756.25 2,500.00 431.25 2,068.751040 Department of the Treasury-Internal Revenue Service (99) U.S. Individual Income Tax Return 2018 OMB No. 1545-0074 IRS Use Only-Do not write or staple in this space. Filing status: Single |Married filing jointly |Married filing separately Head of household Qualifying widow(er) Your first name and initial Last name Your social security number LIZ PEARL 9 8 7 6 1 2 3 4 Your standard deduction: Someone can claim you as a dependent You were born before January 2, 1954 You are blind If joint return, spouse's first name and initial Last name Spouse's social security number Spouse standard deduction: | Someone can claim your spouse as a dependent Spouse was born before January 2, 1954 Full-year health care coverage Spouse is blind Spouse itemizes on a separate return or you were dual-status alien or exempt (see inst.) Home address (number and street). If you have a P.O. box, see instructions. Apt. no. Presidential Election Campaign 12 S PINE STREET (see inst.) You Spouse City, town or post office, state, and ZIP code. If you have a foreign address, attach Schedule 6. If more than four dependents, OGDEN UT 84401 see inst. and > here > 0 Dependents (see instructions): (2) Social security number (3) Relationship to you (4) Phone no. Self-employed Firm's address For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. Cat. No. 11320B Form 1040 (2018)Form 1040 (2018) Page 2 1 Wages, salaries, tips, etc. Attach Form(s) W-2 1 60,000 00 Attach Form(s) 2a Tax-exempt interest . 2a b Taxable interest W-2. Also attach 3a Qualified dividends 3a b Ordinary dividends 3b Form(s) W-2G and 1099-R if tax was 4a IRAs, pensions, and annuities b Taxable amount withheld 5a Social security benefits 5a b Taxable amount 5b 6 Total income. Add lines 1 through 5. Add any amount from Schedule 1, line 22 60,000 00 Adjusted gross income. If you have no adjustments to income, enter the amount from line 6; otherwise, Standard subtract Schedule 1, line 36, from line 6 60,000 00 Deduction for- 8 Standard deduction or itemized deductions (from Schedule A) 8 12,000 00 . Single or married filing separately, 9 Qualified business income deduction (see instructions) . 9 $12,000 10 Taxable income. Subtract lines 8 and 9 from line 7. If zero or less, enter -0- 10 48,000 00 . Married filing jointly or Qualifying |1 1 a Tax (see inst.) (check if any from: 1 Form(s) 8814 2 Form 4972 3 widow(er), $24,000 b Add any amount from Schedule 2 and check here 11 . Head of 12 a Child tax credit/credit for other dependents b Add any amount from Schedule 3 and check here 12 household, $18,000 13 Subtract line 12 from line 11. If zero or less, enter -0- 13 . If you checked 14 any box under Other taxes. Attach Schedule 4 . 14 Standard 15 Total tax. Add lines 13 and 14 . 15 deduction, see instructions. 16 Federal income tax withheld from Forms W-2 and 1099 16 17 Refundable credits: a EIC (see inst.) b Sch. 8812 c Form 8863 Add any amount from Schedule 5 17 18 Add lines 16 and 17. These are your total payments 18 Refund 19 If line 18 is more than line 15, subtract line 15 from line 18. This is the amount you overpaid 19 20a Amount of line 19 you want refunded to you. If Form 8888 is attached, check here . 20a Direct deposit? See instructions. b Routing number c Type: |Checking Savings d Account number 21 Amount of line 19 you want applied to your 2019 estimated tax 21 Amount You Owe 22 Amount you owe. Subtract line 18 from line 15. For details on how to pay, see instructions 22 23 Estimated tax penalty (see instructions) 23 Go to www.irs.gov/Form1040 for instructions and the latest information. Form 1040 (2018)525 4,!\" 4.54? E 25 $35.33 i'iii iiii iii iiii $555 i'' 33555 35555 EE EEEQE Eiii m 4.42: 4.145 4,!!! m 5.231 1,100 m 4.1m m m m 40,150 m 4.1:? 4.34: am m m we 4cm me an m m m 4.15: nun m m m MI! 4,100 mu m 5.31 m Ml \"11 W m \"I? m m 4322 an mm m m MN \"33 M79 m me m M?! mu m m an m 4.4a 4.355 lull m m 5.311 m \"I am nut! own mu m was am m 4.43 mm m m um 5.214 6.19? am 40,100 um mm m mm .700 m 6.200 5.320 40,150 m mm 4.31: own no m 0.219 5.3a m 4.51! um um no no m 0.230 as" \fForm 1040 (2018) Page 2 1 Wages, salaries, tips, etc. Attach Form(s) W-2 1 60,000 00 2a 2a b Taxable interest Attach Form(s) Tax-exempt interest . 2b W-2. Also attach 3a Qualified dividends . 3a b Ordinary dividends 3b Form(s) W-2G and 1099-R if tax was 4a IRAs, pensions, and annuities b Taxable amount 46 withheld. 5a Social security benefits 5a b Taxable amount 5b 6 Total income. Add lines 1 through 5. Add any amount from Schedule 1, line 22 6 60,000 00 Adjusted gross income. If you have no adjustments to income, enter the amount from line 6; otherwise, Standard subtract Schedule 1, line 36, from line 6 60,000 00 Deduction for- Single or married Standard deduction or itemized deductions (from Schedule A) 8 12,000 00 filing separately. 9 Qualified business income deduction (see instructions) . 9 $12,000 10 Taxable income. Subtract lines 8 and 9 from line 7. If zero or less, enter -0- 10 48,000 00 . Married filing jointly or Qualifying 11 a Tax (see inst.) (check if any from: 1 Form(s) 8814 2 Form 4972 3 widow(er). 00 $24,000 b Add any amount from Schedule 2 and check here 11 6,494 . Head of household, 12 a Child tax credit/credit for other dependents b Add any amount from Schedule 3 and check here 12 $18,000 13 Subtract line 12 from line 11. If zero or less, enter -0- 13 . If you checked 14 any box under Other taxes. Attach Schedule 4 . 14 Standard 15 Total tax. Add lines 13 and 14 15 deduction, see instructions. 16 Federal income tax withheld from Forms W-2 and 1099 16 17 Refundable credits: a EIC (see inst.) b Sch. 8812 c Form 8863 Add any amount from Schedule 5 17 18 Add lines 16 and 17. These are your total payments 18 Refund 19 If line 18 is more than line 15, subtract line 15 from line 18. This is the amount you overpaid 19 20a Amount of line 19 you want refunded to you. If Form 8888 is attached, check here 20 Direct deposit? See instructions. Routing number c Type: Checking Savings >d Account number 21 Amount of line 19 you want applied to your 2019 estimated tax 21 Amount You Owe 22 Amount you owe. Subtract line 18 from line 15. For details on how to pay, see instructions 22 23 Estimated tax penalty (see instructions) . 23 Go to www.irs.gov/Form1040 for instructions and the latest information. Form 1040 (2018)Form 1040 (2018) Page 2 1 Wages, salaries, tips, etc. Attach Form(s) W-2 60,000 00 Attach Form(s) 2a Tax-exempt interest . 2a b Taxable interest 2b W-2. Also attach 3a Qualified dividends . 3a b Ordinary dividends 3b Form(s) W-2G and 1099-R if tax was 4a IRAs, pensions, and annuities b Taxable amount 46 withheld. 5a Social security benefits 5a b Taxable amount 5b 6 Total income. Add lines 1 through 5. Add any amount from Schedule 1, line 22 60,000 00 Adjusted gross income. If you have no adjustments to income, enter the amount from line 6; otherwise, Standard subtract Schedule 1, line 36, from line 6 60,000 00 Deduction for- Standard deduction or itemized deductions (from Schedule A) 8 12,000 00 . Single or married filing separately, Qualified business income deduction (see instructions) . 9 $12,000 10 10 48,000 00 . Married filing Taxable income. Subtract lines 8 and 9 from line 7. If zero or less, enter -0- jointly or Qualifying 11 a Tax (see inst.) (check if any from: 1 Form(s) 8814 2 |] Form 4972 3 widow(er), b Add any amount from Schedule 2 and check here 11 00 $24,000 6,494 . Head of 12 b Add any amount from Schedule 3 and check here 12 household, a Child tax credit/credit for other dependents $18,000 13 Subtract line 12 from line 11. If zero or less, enter -0- 13 6.494 00 . If you checked 14 Other taxes. Attach Schedule 4 . 14 any box under Standard 15 Total tax. Add lines 13 and 14 15 6,494 00 deduction, see instructions. 16 Federal income tax withheld from Forms W-2 and 1099 16 4,224 00 17 Refundable credits: a EIC (see inst.) b Sch. 8812 c Form 8863 Add any amount from Schedule 5 17 18 Add lines 16 and 17. These are your total payments 18 4,224 00 Refund 19 If line 18 is more than line 15, subtract line 15 from line 18. This is the amount you overpaid 19 20a Amount of line 19 you want refunded to you. If Form 8888 is attached, check here 20a Direct deposit? See instructions. b Routing number c Type: |Checking Savings - d Account number 21 Amount of line 19 you want applied to your 2019 estimated tax 21 Amount You Owe 22 Amount you owe. Subtract line 18 from line 15. For details on how to pay, see instructions 22 2,270 00 23 Estimated tax penalty (see instructions) . 23 Go to www.irs.gov/Form1040 for instructions and the latest information. Form 1040 (2018)