Publication 17 (2023): Your Federal Income Tax

IRS Publication 17 is a tax guide for individuals preparing their federal income tax returns. Released annually by the Internal Revenue Service, it interprets tax laws from Congress and Treasury regulations to detail the rules for calculating and reporting income. This article summarizes the most common topics from Publication 17 to help individual filers understand their tax obligations.

Filing Information and Dependents

Determining the correct filing status is the initial step in preparing a tax return, as it dictates the standard deduction and tax rates. A taxpayer’s status is determined as of the last day of the tax year. The five filing statuses are:

• Single: For unmarried individuals.
• Married Filing Jointly: For married couples who combine their incomes and deductions on one return.
• Married Filing Separately: For married couples who report their income and deductions on separate returns.
• Head of Household: For unmarried individuals who pay more than half the cost of keeping up a home for a qualifying person. This status has a lower tax rate and higher standard deduction than Single, and a special rule exists for a dependent parent, who does not need to live with the taxpayer.
• Qualifying Surviving Spouse: Available for two years after a spouse’s death if the survivor has a dependent child and meets other criteria.

Taxpayers may also be able to claim a dependent, which provides tax benefits. There are two categories of dependents: a Qualifying Child and a Qualifying Relative. Each has a distinct set of tests that must be passed for a taxpayer to claim them.

To be a Qualifying Child, an individual must meet five tests:

• Relationship: The child must be the taxpayer’s son, daughter, stepchild, foster child, sibling, or a descendant of any of them.
• Age: The child must be under 19, under 24 if a full-time student, or any age if permanently and totally disabled.
• Residency: The child must have lived with the taxpayer for more than half the year.
• Support: The child cannot have provided more than half of their own support.
• Joint Return: The child cannot file a joint return with a spouse, unless it is only to claim a refund.

A Qualifying Relative is a person who is not a qualifying child of any taxpayer and meets a different set of tests. These include a relationship or member of household test, a gross income test, and a support test. The relationship test is broad, including parents and in-laws, who do not have to live with the taxpayer. If not related, the person must have lived with the taxpayer all year. For 2025, the person’s gross income must be less than $5,200, and the taxpayer must have provided more than half of the person’s total support for the year.

Reporting Taxable Income

The foundation of a tax return is reporting all taxable income. For most individuals, the largest component is employee compensation, including wages, salaries, bonuses, and tips, as reported on Form W-2. Other common sources of income include interest from savings accounts (Form 1099-INT) and dividends from investments (Form 1099-DIV), which must be included on the tax return.

Self-employed individuals report revenue and deduct business expenses on Schedule C, Profit or Loss from Business. The net profit is reported as income on the personal tax return and is also subject to self-employment taxes.

Capital gains and losses arise from the sale of assets like stocks and real estate. If an asset is sold for more than its purchase price, the profit is a taxable capital gain. Gains on assets held for more than one year are subject to lower long-term capital gains rates, while those held for a year or less are taxed at ordinary income rates.

Retirement income, such as distributions from traditional IRAs, 401(k)s, and pensions, is taxable as ordinary income. The taxable amount depends on whether contributions were made with pre-tax or after-tax dollars. Unemployment compensation is also considered taxable income and must be reported.

A portion of Social Security benefits may be taxable depending on the taxpayer’s total income. If a taxpayer’s “combined income,” which includes adjusted gross income, nontaxable interest, and half of their Social Security benefits, exceeds certain thresholds, a percentage of the benefits become taxable.

Certain items are not considered taxable income and do not need to be reported. These include gifts, inheritances, life insurance proceeds paid due to the death of the insured, and qualified scholarship amounts.

Deductions from Gross Income

After determining total income, taxpayers can reduce this amount through deductions. The first type, known as adjustments to income, are subtracted from gross income to arrive at Adjusted Gross Income (AGI). These are sometimes called “above-the-line” deductions.

Common adjustments to income are available regardless of whether a taxpayer itemizes. These include:

• Up to $300 of unreimbursed expenses for eligible K-12 educators.
• Up to $2,500 in student loan interest paid.
• Contributions to a Health Savings Account (HSA), up to $4,300 for self-only or $8,550 for family coverage in 2025.
• Deductible contributions to a traditional IRA, which may be limited by income and workplace retirement plan coverage.

Once AGI is calculated, a taxpayer must choose between taking the standard deduction or itemizing deductions. The standard deduction is a fixed dollar amount based on filing status. For 2025, the standard deduction is $15,000 for single filers, $30,000 for married couples filing jointly, and $22,500 for heads of households. An additional amount can be claimed by those who are age 65 or older or blind.

Itemizing is beneficial if the total of eligible expenses on Schedule A exceeds the standard deduction. Taxpayers who itemize should maintain detailed records of all expenses. The primary categories of itemized deductions are:

• Medical and dental expenses that exceed 7.5% of the taxpayer’s AGI.
• State and local taxes (SALT), including income, sales, and property taxes, capped at $10,000 per household.
• Home mortgage interest on a primary residence and a second home, subject to limits on the total mortgage debt.
• Charitable contributions made to qualified organizations. For cash gifts, the deduction is limited to 60% of AGI, while non-cash gifts have different rules.

Tax Credits and Payments

Tax credits reduce the final tax liability on a dollar-for-dollar basis, making them more impactful than deductions, which only lower taxable income. Credits are either nonrefundable or refundable. A nonrefundable credit can reduce tax liability to zero, while a refundable credit can result in a refund even if no tax is owed.

Federal tax credits are available to many taxpayers. The Child Tax Credit provides up to $2,000 for each qualifying child, with up to $1,700 being refundable as the Additional Child Tax Credit. The Credit for Other Dependents is a nonrefundable credit for those who do not qualify for the Child Tax Credit.

Other credits include the Earned Income Tax Credit (EITC), a refundable credit for low- to moderate-income working individuals and couples, particularly those with children. The American Opportunity and Lifetime Learning Credits help with higher education costs. The Child and Dependent Care Credit helps taxpayers who pay for care for a qualifying individual so they can work.

The final tax calculation also accounts for payments made during the year. This includes federal income tax withheld from paychecks (reported on Form W-2) and any estimated tax payments made by self-employed individuals. These payments are subtracted from the total tax to determine if a refund is due or if more tax is owed.