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Taxes 101

Catherine Hiles • January 18, 2023

Understanding how taxes work can help make filing your tax return much more straightforward. Learn everything you need to know about taxes.

Taxes improve services in our communities and support economic growth. While tax season may seem stressful, it’s an excellent opportunity to earn extra money by maximizing your refund.

Understanding how tax returns work can make the process easier, so you can focus on getting your return and putting it toward your savings, paying off debt, and more.

Prepare yourself for tax season by learning more about the tax code and process to maximize your refund — you could even get your federal refund up to five days early with Chime.¹

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Tax terms to know

You may come across terms that are unfamiliar when filing your taxes. Words like “withholding,” “dependent,” and “exemption” can seem confusing, especially if you’re a first-time filer.

Here are a few of the most-used terms and their basic definitions:

  • WithholdingThe amount of your paycheck that your employer holds back to pay your income taxes throughout the year.
  • Adjusted gross income (AGI): Your total annual income, including wages, tips, and capital gains, with some deductions applied.
  • Tax deductions: Expenses you can subtract from your AGI to reduce your total taxable income.
  • Tax credit: A dollar-for-dollar reduction in the amount you owe in taxes.
  • Exemption: Specific amounts that reduce your total taxable income.

Read about the top tax terms to know.

What is a tax credit?

A tax credit can reduce the taxes you owe to the government. For example, if your tax bill was $1,000 and you had a tax credit of the same amount, you would owe $0 in taxes. Some tax credits are refundable, meaning you could receive a check from the IRS if your credit is higher than your taxes owed.

Some of the most common tax credits are as follows:

  • The Child Tax Credit reduces the amount you have to pay if you have children. The amount can change each year; for the 2022 tax year, the credit is $2,000 per dependent child under age 17, according to the IRS website.2
  • The American Opportunity Tax Credit helps students reduce the taxes they owe, provided they are enrolled at least half-time at a university. There are also several other education-related tax credits.
  • The Earned Income Tax Credit is for filers age 19 and older who aren’t claimed as a dependent on another person’s tax return. It’s only available if you earn less than a certain amount (which changes annually), according to the IRS.3 For the 2022 tax year, the income limit is as follows:
Number of Children ClaimedSingle, Widowed, or Head of HouseholdMarried Filing Jointly

Learn about tax credits to see how you can reduce your tax bill.

What is a tax deduction?

A tax deduction, also known as a tax write-off, is an item you can deduct from your taxable income to reduce the taxes you owe.

You can take the standard deduction or itemize your deductions when you file your taxes. According to the IRS,4 the standard deductions for 2023 are as follows:

  • Single or married filing separately: $13,850
  • Married filing jointly: $27,700
  • Head of household: $20,800

You may want to itemize your deductions if it results in a larger overall deduction on your tax bill, but it requires more paperwork. Some of the most common tax deductions are:

  • Property taxes
  • Mortgage interest
  • Student loan interest
  • Retirement account contributions
  • Charitable contributions
  • Self-employment expenses

See more tax deductions that can help reduce your tax bill.

What tax bracket am I in?

The U.S. has a progressive tax system, which means the more you earn, the more you’ll owe in taxes. Tax brackets determine how much money an individual owes based on income.

In addition to your income, your tax bracket will also depend on your filing status (single, married filing separately, married filing jointly, or head of household).

You can learn your income tax bracket on our blog, which includes a clear table breaking down each bracket by income and filing status.

How to file taxes

Tax season doesn’t need to be stressful. You can easily file your taxes by following a few simple steps:

  1. Choose your filing method. Do you want to file online or via a tax professional?
  2. Get your documents together. That includes W-2s or 1099s for your income, mortgage income statements, and property tax statements.
  3. Learn the most common tax terms. Chime has a helpful guide to get you started.
  4. Decide on your deductions. Many filers choose to take the standard deduction, but itemized deductions may be better if you own a small business or make many sizable charitable contributions. Talk to a tax professional if you’re unsure which type of deduction to take.
  5. File your tax forms. If you’re filing online, triple-check to make sure you have everything.
  6. Choose your payment method. Signing up for direct deposit through the IRS helps ensure you get your tax refund quickly

Read more about how to file your taxes online.

How do I file my taxes as an independent contractor?

The IRS considers anyone self-employed to be an independent contractor. If this is you, filing taxes can be a complicated process — but it doesn’t have to be overwhelming.

In addition to income and taxes, independent contractors must file self-employment taxes, which help cover Medicare and Social Security contributions.

The IRS recommends that independent contractors make quarterly payments throughout the year if they are likely to owe money. You can make quarterly payments by mail, phone, or through the IRS website.

Get the full details on how to file taxes as an independent contractor.

What happens if you file taxes late?

Taxes for 2022 income are due April 18, 2023, but if you can’t file by then, you should file a tax extension request to push your tax due date to October 17, 2023.

However, you could get a penalty if you owe taxes and don’t pay them by Tax Day. You can still file anytime until the October deadline, but filing late means you’ll get your return later than expected.

Learn more about what happens if you file your taxes late.

Where's my tax refund?

Filing your taxes online and choosing direct deposit usually means you’ll get your refund fairly quickly — around 21 days or less. Paper filing takes longer. It might take up to eight weeks to see your refund.

You can contact your bank for assistance if you suspect your tax refund deposit went into the wrong bank account. However, the IRS doesn’t take responsibility for such a mistake, so it’s essential to double-check your account information when you set up your direct deposit through the IRS.

Read about how long it takes to get a tax refund and how you can check your return’s status.

What should I do with my tax refund?

Once you get your deposit, the money is yours to spend however you like. But there are several ways to use your tax refund smartly, including the following:

  • Put it in savings. Create or add to your emergency fund or save for that dream vacation.
  • Pay down your debt. You can make a sizable dent in your debt or even pay it off, depending on your refund amount.
  • Put it toward retirement. If you have an IRA, you can invest up to $6,500 in 2023 (and up to $7,500 if you’re 50 or older), according to the IRS.5
  • Start a business. Do you have a hobby you’ve been considering turning into a business? Your tax refund can help you get your new business off the ground.
  • Donate. You can help others by donating to your favorite organization using some or all of your tax refund. In some cases, you can even get a tax deduction on your taxes for the following year.

Discover more smart things to do with your tax refund to help you get closer to your financial goals.

Get your tax refund sooner with Chime

Taxes are easier to manage if you understand how they work. While there are a few terms and rules to learn, it’s well worth researching before filing your taxes. Once you understand the ins and outs of taxes, you can maximize your tax return and have a stress-free experience.

You can get your federal tax refund up to 6 days early1 when you direct deposit with Chime and file directly with the IRS. Not yet a member? Sign up for Chime in two minutes.

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1 Chime does not guarantee timing of refund. Six day refund estimate is based on 2022 tax year filing data. Refund timing estimates are dependent upon timing of complete tax return submission and other requirements

2 Information from IRS's 2022 Instructions for Schedule 8812 as of January 11, 2023:

3 Information from IRS's Earned Income and Earned Income Tax Credit (EITC) Tables as of January 11, 2023:

4 Information from IRS's IRS Provides Tax Inflation Adjustments for Tax Year 2023 as of January 11, 2023:

5 Information from IRS's 401(k) Limit Increases to $22,500 for 2023, IRA Limit Rises to $6,500 as of January 11, 2023:

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