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There are a variety of taxes you may have to pay, such as Income tax, capital gains tax, sales tax, and property tax. Whether you’re new to the workforce or a seasoned retiree, taxes can be complicated to understand and to pay.

This guide can help. Here, you’ll learn more about what taxes are, the different types of taxes to know about, and helpful tax filing ideas. Read on to raise your tax I.Q.

What Are Taxes?

At a high level, taxes are involuntary fees imposed on individuals or corporations by a government entity. The collected fees are used to fund a range of government activities, including but not limited to schools, road maintenance, health programs, and defense measures.

Different Types of Taxes to Know

Here’s a detailed look at what are many of the different types of taxes that can be levied and the ways in which they are typically calculated and imposed, plus insights into how they might impact your checking account.

Income Tax

The federal government collects income tax from people and businesses, based upon the amount of money that was earned during a particular year. There can also be other income taxes levied, such as state or local ones. Specifics of how to calculate this type of tax can change as tax laws do.

The amount of income tax owed will depend upon the person’s tax bracket; it will typically go up as a person’s income does. That’s because the U.S. has a progressive tax system for federal income tax, meaning individuals who earn more are taxed more.

If you’re wondering what tax bracket you are in, know that there are currently seven different federal tax brackets. The amount owed will also depend on filing categories like single; head of household; married, filing jointly; and married, filing separately.

Deductions and credits can help to lower the amount of income tax owed (which might leave you with more money in your savings account).

And if a federal or state government charges you more than you actually owed, you’ll receive a tax refund. It can be helpful to check the IRS website or online tax help centers to learn more about income tax.

Property Tax

Property taxes are charged by local governments and are one of the costs associated with owning a home.

The amount owed varies by location and is calculated as a percentage of a property’s value. The funds typically help to fund the local government, as well as public schools, libraries, public works, parks, and so forth.

Property taxes are considered to be an ad valorem tax, which means they are based on the assessed value of the property.

Payroll Tax

Employers collect payroll taxes to pay for the Medicare and Social Security programs. Also known as Federal Insurance Contribution Act (FICA) taxes, these taxes fund your contributions to qualify for Medicare and Social Security.

The Social Security tax rate is 12.4% but is split between employees and employers (6.2% each). This tax only applies up to an annual wage base limit, which is adjusted each year.

The Medicare tax is 2.90%, also split between you and your employer (1.45% each). There is no wage limit for the standard Medicare tax. Employees who earn above a certain income threshold pay an additional 0.9% on the amount over the limit.

Because this tax is applied uniformly, rather than based on income throughout the system, payroll taxes are considered to be a regressive tax.

Inheritance/Estate Tax

These are actually two different types of taxes.

•   The first — the inheritance tax — can apply in certain states when someone inherits money or property from a deceased person’s estate. The beneficiary would be responsible for paying this tax if they live in one of several different states where this tax exists and the inheritance is large enough.

•   The federal government does not have an inheritance tax. Instead, there is a federal estate tax that is calculated on the deceased person’s money and property. It’s typically paid out from the assets of the deceased before anything is distributed to their beneficiaries.

There can be exemptions to these taxes and, in general, people who inherit from someone they aren’t related to can anticipate higher rates of tax.

Regressive, Progressive, and Proportional Taxes

These are the three main categories of tax structures in the U.S. (two of which have already been mentioned above). Here are definitions that include how they impact people with varying levels of income.

What’s a Regressive Tax?

Because a regressive tax is uniformly applied, regardless of income, it takes a bigger percentage from people who earn less and a smaller percentage from people who earn more.

As a high-level example, a $500 tax would be 1% of someone’s income if they earned $50,000; it would only be half of one percent if someone earned $100,000, and so on. Examples of regressive taxes include state sales taxes and user fees.

What’s a Progressive Tax?

A progressive tax works differently, with people who are earning more money having a higher rate of taxation. In other words, this tax (such as an income tax) is based on income.

This system is designed to allow people who have a lower income to have enough money for cost of living expenses.

What’s Proportional Tax?

A proportional tax is another way of saying “flat tax.” No matter what someone’s income might be, they would pay the same proportion. This is a form of a regressive tax and proportional taxes are more common at the state level and less common at the federal level.

Capital Gains Tax

Next up, take a closer look at the capital gains tax that an investor may be responsible for paying when having stocks in an investment portfolio. This can happen, for example, if they sell a stock that has appreciated in value over the purchase price.

The difference in the increased value from purchase to sale is called “capital gains” and, typically, there would be a capital gains tax levied.

An exception can be when an investor sells increased-in-value stocks through a tax-deferred retirement investment inside of the account. Meanwhile, dividends are taxed as income, not as capital gains.

It’s also important for investors to know the difference between short-term and long-term capital gains taxes. In the U.S. tax code, short-term is one year or less, while long-term is anything longer. Gains made by short-term investments are generally taxed at the same rate as ordinary income. Long-term capital gains tax rates are 0%, 15%, and 20%, depending on your income.

Recommended: High-Yield Savings Account Calculator

Ideas For Tax-Efficient Investing

Ideas for tax-efficient investing can include to select certain investment vehicles, such as:

•   Exchange-traded funds (ETFs): These are baskets of securities that trade like a stock. They can be tax-efficient because they typically track an underlying index, meaning that while they allow investors to have broad exposure, individual securities are potentially bought and sold less frequently, creating fewer events that will likely result in capital gains taxes.

•   Index mutual funds: These tend to be more tax efficient than actively managed funds for reasons similar to ETFs.

•   Treasury bonds: There are no state income taxes levied on earned interest.

•   Municipal bonds: Interest, in general, is exempted from federal taxes; if the investor lives within the municipality where these local government bonds are issued, they can typically be exempt from state and local taxes, as well.

VAT Consumption Tax

In the U.S., taxpayers are charged a regressive form of tax, a sales tax, on many items that are purchased. In Europe, the system works differently. A VAT tax is a form of consumption tax that’s due upon a purchase, calculated on the difference between the sales price and what it cost to create that product or service. In other words, it’s based on the item’s added value.

Here’s one big difference between a sales tax and a VAT tax:

•   Sales tax is charged at the final part of the sales transaction.

•   VAT, on the other hand, is calculated throughout each supply chain step and then built into the final purchase price.

This leads to another difference. Sales taxes are added onto the purchase price that’s listed; VAT contains those fees within the price and so nothing extra is added onto the price tag that a buyer would see.

Sales Tax

Ka-ching! You are probably used to sales tax being added to many of your purchases. It’s a method that governments use to collect revenue from citizens, and in America, it can vary by state and local area.

Funds collected via sales tax are frequently used for local and state budget items. These might include school, road, and fire department expenses.

Excise Tax

An excise tax is one that is applied to a specific item or activity. Some common examples are the taxes added to alcoholic beverages, amusement/betting pursuits, cigarettes (yes, the “sin taxes,” as they are sometimes called, gasoline, and insurance premiums.

These taxes are primarily paid by businesses but are sometimes passed along to consumers, who may or may not be aware that these taxes can be rolled into retail prices. Some excise taxes, however, are paid directly by consumers, such as property taxes and certain taxes on retirement accounts.

Luxury Tax

Luxury tax is just what it sounds like: tax on purchases that aren’t necessities but are pricey purchases. It can be paid by a business and possibly passed along to the consumer. Typical examples of items that are subject to a luxury tax include expensive boats, airplanes, cars, and jewelry.

The revenue that’s raised by these taxes may fund an array of government programs designed to benefit U.S. citizens.

Corporate Tax

Here’s another tax with a name that tells the story. Corporate tax is, quite simply, a tax on a corporation’s profits, or taxable income. This is based on a business’ revenue once a variety of expenses are subtracted, such as administrative expenses, the cost of any goods sold, marketing and selling costs, research and development expenses, and other related and operating costs.

Corporate taxes are specific to each country, with some having higher rates than others, and there are a variety of ways to lower them via loopholes, subsidies, and deductions.

Tariffs

Tariffs represent a protectionist tool that governments may use. That is, they are taxes levied on imported goods at the border. The idea is typically that this will help boost the cost of imports and hopefully nudge consumers to buy items made on home soil.

Surtax

A surtax is an additional tax levied by the government in addition to other taxes. It is typically paid by consumers when the government needs to raise funds for a specific program. For instance, a 10% surtax was levied on individual and corporate income by the Johnson administration in 1968. The funds were collected to help fund the war effort in Vietnam.

Tax Filing Ideas

Now that you know what the different types of taxes are, consider the event that makes many of us contemplate this topic: filing taxes. It’s an annual ritual that may trigger anxiety for many, but if you spend a little time educating yourself about the process, it’s not so scary. Here, a few ways to help make preparing for tax season easier:

•   Consider how you’d like to file. Choose the method that best suits your needs and comfort level. You might want to work with a professional tax preparer to assist you, or perhaps use tax software to help you through the process. (Some taxpayers will qualify for the IRS Free File service, which is a free guided software tool.)

Another option is to fill out either the IRS form 1040 or 1040-SR by hand and mail it in, but given how this can open you up to human error and handwriting or typing mistakes, it’s not recommended.

•   Gather all your paperwork. Being organized can be half the battle here. Develop a system that works for you (you might want to use a tax-preparation checklist) to collect such items as:

◦   Your W-2s and/or 1099 forms reflecting your income

◦   Proof of any mortgage interest paid or property taxes

◦   Retirement account contributions

◦   Interest earned on investments or money held in bank accounts

◦   State and local taxes paid

◦   Donations to charities

◦   Educational expenses

◦   Medical bills that were not reimbursed

•   Even if you are lower-income and don’t need to file, consider doing so. It may be to your financial benefit. For instance, you might qualify for certain tax breaks, such as the earned income tax credit (EITC) or, if you’re a parent, the child credit.

•   Whether you owe money or are getting a refund, know how to settle your account with the IRS. If you’ll be receiving a tax refund, you may want to request that it be sent via direct deposit to make the process as seamless and speedy as possible. If, on the other hand, you owe money, there are an array of ways to send funds, including payment plans. Do a little research to see what suits you best.

By getting ahead of tax filing deadlines in these ways, you can likely make this annual ritual a little less intimidating and time-consuming.

Recommended: Guide to Filing Taxes for the First Time

The Takeaway

Understanding the different kinds of taxes can help you boost your financial literacy and your ability to budget well. You’ll know a bit more about why you pay federal and any state and local taxes and also be aware of other charges like luxury taxes and sales taxes.

Here’s another way to help your finances along: by partnering with a bank that puts you first.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What are the most common taxes people use?

The most common taxes that Americans pay are income tax on their earnings, sales tax on purchases, and property tax on their homes.

How many categories of taxes are there?

There are easily more than a dozen kinds of taxes levied in the U.S. Which ones you are liable for will depend on a variety of factors, such as whether you are an individual or represent a business, whether you purchase luxury items, and so forth.

Will I use all of these forms of taxes?

Which forms of taxes you will be liable for will likely depend upon the specifics of your situation. For example, among the most common taxes are income, property, and sales taxes, but if you rent rather than own your home, you won’t owe property taxes. If you purchase a boat, you might pay a luxury tax; if you like to frequent casinos, you could be paying excise taxes.

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Filling out the Free Application for Federal Student Aid (FAFSA®) is one of the most important steps in paying for college. Completing the form accurately and on time can unlock access to federal grants, work-study opportunities, and student loans. Many states and individual colleges also rely on FAFSA information to determine eligibility for their own need-based and merit-based scholarships and grants.

Although recent updates have significantly simplified the FAFSA, the process can still feel intimidating — especially for first-time applicants and their families. This guide walks you through what you need to know, from gathering the right documents before you begin to what to expect when completing the application online.

Completing the FAFSA for the 2026-2027 Academic Year

The FAFSA for the 2026-2027 school year determines financial aid eligibility for students attending college between July 1, 2026 and June 30, 2027. The application typically opens in the fall of the prior year, allowing students and their families ample time to prepare and submit their information.

However, because some types of financial aid are awarded on a first-come, first-served basis, it’s strongly recommended to complete the FAFSA as early as possible. Submitting early can increase your chances of receiving the maximum amount of aid you may qualify for and make it easier to pay for college.

💡 Quick Tip: Fund your education with a competitive-rate, no-fees-required SoFi private student loan that covers up to 100% of school-certified costs.

Documents You’ll Need to Fill Out the FAFSA

Before starting the online FAFSA form, it’s helpful to gather all required documents in advance. Having this information ready can make the process smoother, faster, and less stressful while reducing the likelihood of errors or delays.

Information and documents you may need to complete the FAFSA include:

•  Your Social Security Number

•  Your Alien Registration Number (A-Number), if you’re not a U.S. citizen

•  Federal income tax returns

•  Records of child support received

•  Current balances of cash, savings, and checking accounts

•  Bank statements and records of investments (if applicable)

•  Records of net worth of investments, businesses, and farms

•  Records of untaxed income (if applicable)

If you’re classified as a dependent student, your parents will also need most of the same information for their portion of the FAFSA.

9 Steps to Filling Out the FAFSA

Below are the key steps to completing the FAFSA online for the 2026-2027 school year.

1. Create a StudentAid.gov Account

Before you can begin the FAFSA, both you and your parent(s), if required, must create a StudentAid.gov account. This account provides a username and password that allows you to securely log in, complete the FAFSA electronically, and sign the form digitally.

2. Start a New FAFSA Form

To begin, navigate to the FAFSA application page and select “Start New Form.” You’ll be prompted to log in using your StudentAid.gov account credentials. After logging in, you’ll select “Student” to indicate that you are completing the form as the student applicant.

3. Enter Your Personal Information

You’ll be asked to provide basic personal details, including your full name, date of birth, Social Security number, and contact information. It’s important to double-check all entries for accuracy, as errors in this section can cause processing delays or issues matching your information with official records.

4. Provide Personal Circumstances

This section is designed to determine if you’re a dependent or independent student for financial aid purposes. If you’re classified as a dependent student, you’ll need to include both your financial information and your parent’s information.

Being a dependent student does not mean your parents are required to pay for your education, but it does affect how your financial aid eligibility is calculated.

5. Complete the Financial Information Section

To be eligible for federal student aid, you must provide consent for the FAFSA to import your tax information directly from the Internal Revenue Service (IRS) using the IRS Direct Data Exchange. For the 2026–2027 FAFSA, the form uses 2024 federal tax information. Once consent is given, relevant tax data will automatically populate your application, helping to save time and reduce errors and omissions.

You’ll also need to report information about your financial assets, such as cash in bank accounts and any investments you own. If you are married, your spouse’s financial information may also be required. Do not include your parents’ assets in this section — they will provide their information separately in their portion of the FAFSA.

6. Provide List of Colleges

You can list multiple colleges on your FAFSA, and each school you include will receive your financial information to determine your financial aid package. Even if you haven’t finalized your college decision, it’s wise to include all schools you’re seriously considering.

You can add or remove schools later if your plans change. Importantly, colleges cannot see which other schools you’ve listed on your FAFSA.

Recommended: College Search Tool

7. Invite Parent Contributors (If Required)

If you are a dependent student, you’ll need to invite your parent(s) to complete their portion of the FAFSA. This is done by providing their email address, which triggers an invitation allowing them to access the form.

If your parents are married and file a joint tax return, only one parent needs to fill out the FAFSA. If they are married but filed separately, both parents are contributors. If your parents are divorced or separated and do not live together, the parent who provided more financial support during the past 12 months is the required contributor.

8. Review and Submit your FAFSA

Before submitting, carefully review all responses to ensure everything is accurate and complete. You’ll then acknowledge the terms and conditions, provide your electronic signature, and submit your section of the form.

If a parent or another contributor is required, the FAFSA will not be processed until all contributors have completed and signed their respective sections. Once all signatures are submitted, your FAFSA is considered complete.

9. Review Your Submission Summary

One to three days after submitting your completed FAFSA, you’ll receive a FAFSA Submission Summary. This document summarizes your responses and provides a basic estimate of your eligibility for federal student aid. It also includes your Student Aid Index (SAI), which colleges use to determine your eligibility for Federal Pell Grants and other federal, state, and institutional aid programs.

💡 Quick Tip: Even if you don’t think you qualify for financial aid, you should fill out the FAFSA form. Many schools require it for merit-based scholarships, too.

What’s Different About the 2026-27 FAFSA

The U.S. Education Department launched the new “Better FAFSA” form, mandated by the FAFSA Simplification Act, beginning with the 2024-2025 aid year. The 2026–2027 FAFSA continues these updates, including:

•  Fewer questions: The FAFSA has been reduced from over 100 questions to approximately 36.

•  Direct data exchange: Applicants must consent to the IRS Direct Data Exchange, which automatically imports federal tax information to reduce errors.

•  Student Aid Index (SAI): The former Expected Family Contribution (EFC) has been replaced by the SAI, which can range as low as -1,500 to better identify students with the greatest financial need.

•  Expanded school list: Students can now list up to 20 colleges on the online FAFSA, doubling the previous limit.

•  FAFSA Submission Summary: Instead of a Student Aid Report (SAR), you receive a FAFSA Submission Summary after filing the FAFSA form.

The Takeaway

Completing the FAFSA is a critical step in securing financial aid for college. While the “Better FAFSA” updates have made the application more streamlined — with fewer questions and direct IRS data exchange — it still requires careful attention to detail. By following these nine steps, from creating your StudentAid.gov account and gathering required documents to inviting parent contributors and reviewing your submission, you can navigate the process with confidence.

Submitting your FAFSA as early as possible is strongly recommended, as some aid is awarded on a first-come, first-served basis. Your resulting Student Aid Index (SAI) will play a key role in determining your eligibility for grants, loans, and scholarships that can make college more affordable.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

What is the #1 most common FAFSA mistake?

One of the most common FAFSA® mistakes is failing to submit the form early enough. While the federal deadline for the FAFSA is generally late, state and college-specific deadlines are often much earlier, and some aid is awarded on a first-come, first-served basis. Submitting the FAFSA as close to its opening date as possible (typically October 1st of the prior year) maximizes your chances of receiving the most aid.

Are parents or students supposed to fill out FAFSA?

Both students and parents may need to fill out the FAFSA®, depending on the student’s dependency status. The student is responsible for starting and submitting the application using their own Federal Student Aid (FSA) ID. If the student is considered dependent, a parent must also provide financial information and sign the form with a separate FSA ID, which is common for undergraduates applying for aid.

What three things will you need to fill out the FAFSA?

While several documents are helpful, three crucial items needed to fill out the FAFSA are:

•  Social Security number: Your valid Social Security card and number are required. (If you are not a U.S. citizen, you may need your Alien Registration Number instead).

•  Federal income tax information: You’ll need access to information from your federal income tax returns from the relevant tax year, which can be transferred automatically using the IRS Direct Data Exchange.

•  Records of other income and assets:This includes information on current balances of cash, savings, and checking accounts, as well as the net worth of any investments, businesses, or farms. You may also need records of untaxed income received, such as child support.

Photo credit: iStock/Vladimir Sukhachev

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Bank, N.A. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.

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