Your 9 Most Common Tax Questions, Answered
Educators often reassure students that in their attempt to understand the subject matter at hand, there are no wrong questions. This principle applies equally to understanding taxes, and the following are some of the most important questions and answers for taxpayers to become familiar with in order to educate and empower themselves.
1. What’s the difference between a deduction and a credit?
Deductions reduce the amount of income on which you owe taxes, which decreases your tax bill. For example, if you took a $1,000 deduction, and you fall into the 22 percent tax bracket, you would save $220 on your taxes.
Credits are different from deductions. Rather than reducing your taxable income, they directly decrease your tax bill. For example, if you receive a $1,000 credit, you pay $1,000 less in taxes. A credit is almost always worth more than a deduction of the same size.
You may also see older material referring to personal exemptions, which worked like deductions and were claimed for yourself, your spouse, and each dependent. The Tax Cuts and Jobs Act eliminated them beginning with the 2018 tax year, and the One Big Beautiful Bill Act made that permanent. They no longer exist. The larger standard deduction and the expanded Child Tax Credit replaced them.
For more on this see our article on The Difference Between a Tax Credit and a Tax Deduction.
2. What is the difference between AGI and MAGI?
Adjusted gross income is your total income minus specific adjustments the IRS allows. It appears on line 11 of your Form 1040 and it determines your eligibility for a long list of credits, including the Child Tax Credit, the Child and Dependent Care Credit, the Earned Income Credit, and education credits.
Common adjustments that lower your AGI include:
- Traditional IRA and self-employed retirement plan contributions
- Health savings account contributions
- Student loan interest
- One-half of self-employment tax
- Self-employed health insurance premiums
- Educator expenses
Modified adjusted gross income takes your AGI and adds certain deductions back in. Which deductions get added back depends on what you are trying to qualify for, so MAGI is calculated differently for different purposes. It does not appear anywhere on your return. It shows up on IRS worksheets used to determine things like whether your IRA contribution is deductible.
Your MAGI is always equal to or higher than your AGI. For many filers the two numbers are identical.
3. I’m married but my spouse and I want to keep our finances separate and file separately. Is that a problem?
Whether or not this is a problem depends on a number of factors. Though you and your spouse are welcome to file separately, this will disqualify you from receiving many of the benefits that couples receive when filing jointly.
On the other hand, filing jointly renders you responsible for any outstanding debt your spouse incurs, as well as for any misinformation in your spouse’s tax return. If you feel uneasy about this, filing separately might make sense for you.
Filing separately also cuts several benefits. You generally cannot claim the Child and Dependent Care Credit or the Earned Income Tax Credit, though narrow exceptions exist for spouses who are legally separated or living apart. Education credits are off the table entirely, and the capital loss deduction drops from $3,000 to $1,500. If one spouse itemizes, the other must itemize too, even if the standard deduction would have been larger for them.
For more on this see our article on Should a Married Couple File Jointly or Separately?
4. Is there an age limit on claiming my child as a dependent?
There is, but it depends on which test the child meets. Under the qualifying child test, the child must be younger than you (or younger than you and your spouse on a joint return) and either under 19 at the end of the year, or under 24 if they are a full-time student. There is no age limit if the child is permanently and totally disabled, or if they meet the separate qualifying relative test.
Meeting one of those tests is not enough on its own. The dependent taxpayer test, the citizen or resident test, and the joint return test all have to be satisfied as well.
Note that the dependent rules and the Child Tax Credit rules are not the same. A 17 year old can still be your dependent, but they are too old for the Child Tax Credit, though they may qualify you for the $500 Credit for Other Dependents.
5. I’m a contract worker, so taxes aren’t taken out of my paycheck. How exactly do I pay them?
When you work for an employer, it’s their responsibility to ensure that federal and state taxes are being withheld from your paycheck. On the other hand, if you’re self-employed, it’s your responsibility.
If you fall into any of these categories, you’ll need to pay your taxes quarterly to the IRS. (This is very quick and easy to do online through the IRS Direct Pay portal.)
Keep in mind that the tax due dates for quarterly payments can change when the due date falls on a weekend or holiday.
Quarterly payments are estimated using Form 1040-ES. Underpaying can trigger a penalty even if you pay the full balance in April, so the safest approach is to set aside a portion of every payment you receive rather than waiting until the quarterly deadline to find the money.
6. Am I having enough withheld from my paycheck?
Withholding too little leaves you with a bill in April, and potentially an underpayment penalty if the shortfall is large. Withholding too much is not free either. The IRS does not pay interest on money you overpay during the year, so a large refund means you loaned the government money at no return.
The goal is to withhold close to what you actually owe. Adjust your Form W-4 with your employer if your situation changed, which includes marriage, divorce, a new child, a second job, or a spouse starting or leaving work. The IRS Tax Withholding Estimator will tell you what to put on the form.
7. Should I take the standard deduction or itemize?
Take whichever is larger. You cannot take both.
For the 2026 tax year the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly, with additional amounts for taxpayers 65 and older. Itemizing only makes sense if your qualifying expenses add up to more than that.
Expenses that count toward itemized deductions include:
- Mortgage interest
- State and local taxes, up to the SALT cap
- Charitable contributions
- Unreimbursed medical expenses above 7.5% of your AGI
- Casualty losses from federally declared disasters
Most filers come out ahead with the standard deduction. Run both numbers before deciding, since the answer can change year to year.
8. What is the difference between my marginal and effective tax rate?
The United States uses a progressive system with seven brackets running from 10% to 37%. Your marginal rate is the bracket your last dollar of taxable income falls into. Your effective rate is your total tax divided by your total taxable income.
Being in the 24% bracket does not mean you pay 24% of your income in tax. Only the income above that bracket’s starting point is taxed at 24%, while everything below it is taxed at the lower rates. For anyone earning above the first bracket, the effective rate is always lower than the marginal rate.
9. I can’t afford to pay my taxes. Now what?
If you can’t afford to pay your tax bill at this time, there are options. In many cases the IRS may be willing to set up an installment plan to pay your back-owed taxes over a period that’s manageable for you.
There are qualifications that must be met and there are fees associated with installment plans, however, they are far less than fines and penalties that may be otherwise assessed.
File the return even if you cannot pay. The failure-to-file penalty is far larger than the failure-to-pay penalty, so filing on time and paying late costs much less than doing neither.
For more on this see our article on Different IRS Payment Options.
The more questions you can ask in order to educate and empower yourself about taxes, the better you’ll be able to understand the tax system to use it to your advantage toward reducing your tax burden.
Note: Tax laws may change with little notice. We do our best to keep this information current, but it is provided on an “AS IS” basis. It should not be considered, legal, financial, or other professional guidance. For more, see our terms.