When it comes to finances, there’s a lot that Americans don’t understand — especially when it comes to taxes.
GOBankingRates asked 1,000 respondents to explain how knowledgeable or confident they are on the subject of taxes, and 38 percent said they were not knowledgeable. So in a follow-up survey, we tested Americans’ tax knowledge by asking 1,002 respondents six tax questions about filing taxes. The survey found that an impressive 50 percent passed the quiz. But, are you smarter than the average American? Take the quiz to find out.
Question 1: If you're a single tax filer, what is the maximum amount you can deduct for a standard deduction?
Is the standard deduction for a single filer for the 2018 tax year:
Tax filers who choose not to itemize their deductions can take a standard deduction. This is the amount subtracted from your income before your taxes are calculated.
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Just 14 percent of people got this question right. Most people thought it was less, with 40 percent of people choosing $8,000 and 36 percent choosing $5,000. Two percent were optimists, answering that single tax filers could take a standard deduction of $20,000.
All tax filers get a larger standard deduction this year than they did last year, however. The standard deduction for a single taxpayer for the 2017 tax year was just $6,350.
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Question 2: Which IRS tax form is used in the U.S. to report wages paid to employees and taxes withheld from them?
The IRS loves its tax forms, and the names can be confusing. But if you get paid by an employer, you should get one of these forms in January to tell you how much you earned and how much was withheld for taxes.
Most people (68 percent) knew that a W-2 is the form issued by your employer to report wages and tax withholding. However, among the youngest respondents — those aged 18-24 — less than half (48 percent) got this answer right.
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Question 3: Which of the following would not be taxed as income? Select all that apply.
- Income from house property
- Profits and gains of a business or profession
- Capital gains
- Lottery winnings
- Welfare payments
- Inheritances, gifts, bequests
Income can come from more places than your job. It’s important to know what is taxed as income so you don’t end up with a nasty surprise at tax time.
Answer: Welfare payments and inheritances, gifts, or bequests are not considered taxable income.
Welfare payments are not considered taxable income. Inheritances or bequests may be subject to an inheritance tax, but that is the obligation of the estate — not of the beneficiary. And gifts above a certain amount are subject to taxation. But the giver, not the recipient, pays that tax.
Question 4: What day is Tax Day in 2019?
- March 15
- March 20
- April 15
- April 18
- April 20
- May 15
- May 20
Tax Day is scheduled for the same day each year unless that date falls on a weekend day or a holiday. Do you know what day that is, and if that’s the day it falls on next year?
Answer: April 15
Monday, April 15 is the deadline for filing federal tax returns, as well as most state returns. Some states have later deadlines for their returns, but your federal return must still be filed by April 15th.
Seventy percent of respondents knew that Tax Day is April 15th. Twelve percent thought it was the 18th, which is understandable since deadlines for filing both 2016 and 2017 taxes were shifted later due to the Emancipation Day holiday in Washington, D.C.
Question 5: If you file for a tax extension, you can delay the due date of your payment. True or false?
You can request more time to file your income tax return. The IRS will give you an extra six months to complete your return if you ask them nicely. But does that mean you don’t have to pay the tax you owe until October?
Two-thirds (68 percent) of respondents got this one wrong. They thought that extending your due date for filing also extends your due date for paying, but that’s not the case.
You can request an extension to file your tax return, but any tax you owe is still due by the April 15th filing deadline. This means you need to estimate how much income you made and estimate how much tax you will owe. If you have not had sufficient tax withheld, you need to pay the amount you think you’ll owe along with your request for an extension.
Question 6: The IRS offers Free File Software if your income is less than $66,000. True or false?
Filing your taxes is difficult, but tax filing software can make it easier. But do you always have to pay for your tax filing software?
Sixty-five percent of respondents answered this question correctly.
The IRS offers Free File Software at no cost to taxpayers with income below $66,000. If your income is above that amount, you can still use the free fillable forms offered by the IRS. These forms will do the calculations for you, but you have to know what information goes on each line, and how to arrive at that information.
How Did You Do?
Over half of the survey respondents (58 percent) nailed this quiz. The age group that is most knowledgeable about taxes is the older baby boomers, those 65 and over. Sixty percent of that group passed. And women are slightly more knowledgeable than men, with 58 percent of women passing the quiz compared to 57 percent of men.
If you got all the right answers, good for you! You should be able to sail through tax time with little difficulty. If you didn’t, you might want to enlist some help when it comes time to fill out those forms.
Click through to take a quiz on whether you’re smarter than the average American about finances.
More on Taxes
- How to Fill Out a W-4
- Everything You Need to Know About Tax Changes for 2018
- If You Can’t Spot These Fake Tax Breaks, You’re in Trouble
- Watch: Why You Shouldn’t Assume You’re Getting a Tax Refund
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