Tax liability is calculated based on:  Answer areaGross IncomeTaxable IncomeNet IncomeTotal Income

Tax liability is calculated based on Taxable Income.

Here are the steps to calculate tax liability:

1. Determine your total income: This includes all your income sources such as salary, interest income, rental income, etc.

2. Calculate your adjusted gross income (AGI): This is your total income minus certain adjustments like student loan interest, alimony payments, etc.

3. Deduct the standard or itemized deductions: The standard deduction is a fixed amount that reduces the income you're taxed on. You can choose to take the standard deduction or itemize your deductions if it's more beneficial.

4. Deduct any exemptions: These are amounts that further reduce your taxable income. However, note that under the Tax Cuts and Jobs Act, personal exemptions are eliminated for tax years 2018 through 2025.

5. The result is your taxable income: This is the amount of income that you will actually be taxed on.

6. Apply the appropriate tax rates: The tax rates are progressive, meaning they increase as your income increases. Apply these rates to your taxable income to determine your tax liability.

7. Subtract any tax credits: These are amounts that directly reduce the amount of tax you owe. They are more beneficial than deductions because they reduce your tax bill dollar-for-dollar.

8. The result is your tax liability: This is the amount of tax you owe for the year. If the amount of tax withheld from your paycheck during the year is less than your tax liability, you will owe additional tax. If it's more, you will get a tax refund.