Taxes

Two things in life are certain—taxes is one of them.

If you plan to work and earn income, then you should plan to pay taxes. Navigating the federal tax code will be an important part of your financial education as you learn about the concept of taxes, IRS regulations, and tax breaks and credits for which you might be eligible. While we may provide a general overview of the tax code, you should visit the IRS website or consult a tax professional if you have specific questions about your personal taxes.

How do I pay taxes?

You do not pay taxes once a year at tax time—you pay taxes all year via deductions from your paycheck. The amount deducted depends on the number of withholding allowances you claim. As a general rule: more allowances = less tax deducted, and fewer allowances = more tax deducted.

At tax time, your tax liability is calculated based on your income and any adjustments to that income. If you have not paid your tax liability over the year, you still owe tax; if you have overpaid, you will receive a refund.

Do I need to file a tax return?

If you earned income in excess of the limit set by the IRS, then you will have to file taxes for that year. Even if you aren't required to file a return, you may want to file. If too much tax was taken out of your income, for example, you would be eligible for a tax refund that you otherwise would not receive by not filing.

Deductions and Credits

While it is common for most tax benefits and credits to be claimed by your parents who claim you as a dependent, you will still be eligible for standard deductions that allow you to reduce the amount of tax you owe.

A deduction is a reduction in the amount of income subject to tax. Because this decreases how much of your income is used to calculate your tax liability, you owe less tax. A credit is a dollar-for-dollar reduction in the actual tax you have to pay. This reduction occurs after your tax liability has been calculated and directly decreases that liability.