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US income tax basics quiz

Free US income tax questions with answers and explanations: how marginal brackets really work, W-2 vs 1099, deductions vs credits, why a big refund isn't a win, write-offs, capital gains, your paycheck and tax-loss harvesting. US rules.

Tap an answer to check it, or open "Show the answer" under each question. Every question comes from a free 3-minute lesson, linked under its answer. Based on US rules. Educational content, not financial advice.

Question 1 of 21

In the staircase analogy, what's taxed at the higher rate?

  1. Only the dollars above the bracket line
  2. Your entire income, once you pass the line
  3. Only the dollars below the bracket line
  4. The step with most of your dollars
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Answer: A · Only the dollars above the bracket line

Each slice is taxed at its own rate; only the portion above a threshold gets the higher rate.

📚 Learn it: How Tax Brackets Actually Work

Question 2 of 21

With a W-2 job, who withholds your taxes?

  1. You, via quarterly payments
  2. Nobody — you pay it all in April
  3. Your bank, as each check lands
  4. Your employer, automatically
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Answer: D · Your employer, automatically

Employers withhold income and payroll taxes from each W-2 paycheck and send them in for you.

📚 Learn it: W-2 vs 1099

Question 3 of 21

A tax DEDUCTION lowers your...

  1. Salary
  2. Tax bill directly
  3. Taxable income
  4. Credit score
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Answer: C · Taxable income

Deductions reduce the income you're taxed on, so savings equal your rate times the deduction.

📚 Learn it: Deductions vs Credits

Question 4 of 21

What does a big tax refund actually mean?

  1. The IRS paid interest on your taxes
  2. The government gave you a filing bonus
  3. You'll owe more next year to offset it
  4. You overpaid your taxes during the year
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Answer: D · You overpaid your taxes during the year

A refund is just the return of taxes you overpaid — your own money coming back.

📚 Learn it: Why a Big Refund Isn't a Win

Question 5 of 21

True or false: a write-off makes a purchase free.

  1. False — you just pay the sales tax
  2. False — you still pay most of it
  3. True — the IRS refunds the full cost
  4. True, if it's for your business
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Answer: B · False — you still pay most of it

False. It only saves your tax rate on the cost; you still pay the rest.

📚 Learn it: Write-Offs Demystified

Question 6 of 21

How do you get the LOWER long-term capital gains rate?

  1. Hold at least six months before selling
  2. Reinvest the gain within 60 days
  3. Hold more than one year before selling
  4. Buy more shares to lower your cost basis
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Answer: C · Hold more than one year before selling

Holding longer than a year qualifies the gain for the lower long-term rate.

📚 Learn it: Capital Gains: Tax on Your Profits

Question 7 of 21

What is the difference between gross and net pay?

  1. Gross is before deductions, net is what you actually take home
  2. Gross includes bonuses and overtime, net is just base pay
  3. Net is before any deductions, gross is what you actually take home
  4. Gross is your total yearly salary, net is your monthly paycheck
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Answer: A · Gross is before deductions, net is what you actually take home

Gross is the headline number; net is what lands after taxes and deductions.

📚 Learn it: Where Did Half My Paycheck Go?

Question 8 of 21

What does tax-loss harvesting do?

  1. Uses paper losses on stocks you still hold to cut this year's tax bill
  2. Deducts all of your investment losses from your wages in a single year
  3. Sells your winners each year so their gains never pile up and get taxed later
  4. Uses realized investment losses to offset taxable gains (and some income)
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Answer: D · Uses realized investment losses to offset taxable gains (and some income)

Locking in a loss can cancel gains you would otherwise be taxed on, lowering your bill.

📚 Learn it: Turning Investment Losses Into a Tax Break

Question 9 of 21

Why does the tax treatment of a windfall matter?

  1. It varies by source — inheritances are taxed as income to the receiver, while work bonuses are tax-free
  2. It varies by source — a bonus is taxed as income, most inheritances aren't taxed to the receiver
  3. Windfalls under $100,000 are tax-free, and anything above is taxed at a flat 50%
  4. It's the same for all — every windfall is taxed as income in the year you get it
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Answer: B · It varies by source — a bonus is taxed as income, most inheritances aren't taxed to the receiver

Different windfalls are taxed differently, so knowing the rule prevents a surprise bill.

📚 Learn it: You Got a Windfall — Now What?

Question 10 of 21

Why is your take-home pay lower than your salary?

  1. Payroll fees (processing, direct deposit, bank charges)
  2. Savings your employer holds (repaid at year-end)
  3. Taxes and deductions (income tax, FICA, benefits)
  4. Your employer's costs (office space, equipment)
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Answer: C · Taxes and deductions (income tax, FICA, benefits)

Income tax, Social Security/Medicare, and any benefits or 401(k) come out before you ever see it.

📚 Learn it: Your First Paycheck: Where Did It All Go?

Learn it in the app: Taxes, Demystified lessons, free →

3-minute lessons with a quiz, XP and streaks in the free app. No sign-up needed.

Question 11 of 21

Your 'effective' tax rate (total tax ÷ total income) is usually...

  1. Equal to your top bracket
  2. 0% if you get a tax refund
  3. Lower than your top bracket
  4. More than your top bracket
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Answer: C · Lower than your top bracket

Because lower slices are taxed less, your overall rate is lower than the top bracket your last dollar lands in.

📚 Learn it: How Tax Brackets Actually Work

Question 12 of 21

Why can 1099 contractors get a surprise bill?

  1. 1099 income lands in its own higher bracket, separate from wages
  2. Nothing is withheld, and they owe the full self-employment tax
  3. They lose the standard deduction, so every dollar earned gets taxed
  4. They pay tax twice — once to the client and once to the IRS
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Answer: B · Nothing is withheld, and they owe the full self-employment tax

No withholding plus the full self-employment tax means contractors must set the money aside themselves.

📚 Learn it: W-2 vs 1099

Question 13 of 21

In the shopping analogy, a credit is like...

  1. Cash back — the full amount returned
  2. A percentage-off coupon — you save a slice
  3. Loyalty points — a few cents back
  4. A store card — you borrow and repay later
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Answer: A · Cash back — the full amount returned

A credit returns the full amount, like cash back — better than a percentage-off coupon (a deduction).

📚 Learn it: Deductions vs Credits

Question 14 of 21

Why isn't a huge refund ideal?

  1. Big refunds flag your return for an automatic IRS audit
  2. You lent the government your money interest-free all year
  3. The IRS takes a processing fee from refunds over $1,000
  4. It means you'll have to pay it back with next year's return
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Answer: B · You lent the government your money interest-free all year

That overpaid money could have been in your paycheck earning interest or paying down debt.

📚 Learn it: Why a Big Refund Isn't a Win

Question 15 of 21

What must be true for a legit write-off?

  1. It must be a genuine business expense
  2. It must cost over $75 to count
  3. It must be bought through a registered LLC
  4. It must be paid by card so there's a record
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Answer: A · It must be a genuine business expense

Only real, ordinary business expenses qualify; deducting personal stuff is tax fraud.

📚 Learn it: Write-Offs Demystified

Question 16 of 21

When do you owe capital gains tax?

  1. Only when you sell for a profit
  2. When you sell, even at a loss
  3. Only when you move cash to your bank
  4. Every year your shares rise in value
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Answer: A · Only when you sell for a profit

Gains are taxed when realized — when you sell for more than you paid.

📚 Learn it: Capital Gains: Tax on Your Profits

Question 17 of 21

What does the W-4 form control?

  1. How much Social Security and Medicare comes out of each check
  2. How much of each check goes into your 401(k) retirement plan
  3. How much federal income tax is withheld from each check
  4. Your tax bracket and the rate on your top dollars
Show the answer

Answer: C · How much federal income tax is withheld from each check

The W-4 is the dial for federal withholding — tune it to avoid a big bill or a big overpayment.

📚 Learn it: Where Did Half My Paycheck Go?

Question 18 of 21

What is the wash-sale rule you must avoid?

  1. Claiming more than $3,000 of losses against income in a single year, which forfeits the extra instead of carrying it forward
  2. Selling an investment at a loss before holding it a full year, which makes the loss nondeductible
  3. Buying any other fund in the same industry within 90 days before or after the sale, even one that isn't substantially identical
  4. Buying the same (or substantially identical) investment within 30 days before or after the sale, which disallows the loss
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Answer: D · Buying the same (or substantially identical) investment within 30 days before or after the sale, which disallows the loss

Buy something similar but not identical to stay invested without triggering the disallowance.

📚 Learn it: Turning Investment Losses Into a Tax Break

Question 19 of 21

Smart habit for a freelancer?

  1. Wait for your 1099s in January, then start saving
  2. Spend now and cover the tax bill with your April refund
  3. Set aside ~5–10% of each payment for your taxes
  4. Set aside ~25–30% of each payment for taxes
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Answer: D · Set aside ~25–30% of each payment for taxes

Reserving a quarter to a third of each payment avoids the April shock.

📚 Learn it: W-2 vs 1099

Question 20 of 21

How do you shrink an over-large refund?

  1. Ask the IRS to pay it out in monthly checks
  2. Adjust your withholding on Form W-4
  3. Pick direct deposit instead of a mailed check
  4. File your return later in the year
Show the answer

Answer: B · Adjust your withholding on Form W-4

Updating your W-4 keeps more money in each paycheck instead of overpaying.

📚 Learn it: Why a Big Refund Isn't a Win

Question 21 of 21

A gain on a stock held 6 months is taxed...

  1. At a flat 15%, the usual stock rate
  2. At your income rate plus a 10% penalty
  3. At your regular income rate (short-term)
  4. At the long-term rate (held over 90 days)
Show the answer

Answer: C · At your regular income rate (short-term)

One year or less = short-term, taxed as ordinary income — usually higher than the long-term rate.

📚 Learn it: Capital Gains: Tax on Your Profits

Learn it in the app: Taxes, Demystified lessons, free →

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