SoFi

By April 15 of each year, Americans typically must file their tax returns with the Internal Revenue Service (IRS). As the name suggests, income tax requires individuals and businesses to pay a percentage of their earnings or profits from the previous calendar year to the government.

Figuring out the right amount to pay can take some time. When you or your tax preparer fills out your tax forms, you’ll find out if you’ve overpaid your taxes, meaning you’re entitled to a refund, or if you’ve underpaid, which means you’ll owe money to the government.

There are different types of income tax, but the most common one people have to file is federal, which is done through the IRS, a bureau within the U.S. Treasury Department. Depending on where you live, you may also have to pay state or local income taxes.

Here are key things to know about income tax, including how it works, how to determine what you owe, and possible ways to reduce your taxable income and save on taxes.

What Are Income Taxes?

Income taxes are taxes that are collected by the government on income (aka money) earned by individuals and businesses. This can include salaries, tips, commissions, bonuses, investment income, interest earned, and other sources. Income tax can be assessed by a federal, state, and/or local government. Some Americans may only pay federal taxes; others may be liable for taxes at a federal, state, and local level.

Once collected, taxes are typically used to fund a wide array of public services, programs, and government operations at the national and local level.

How Does Income Tax Work?

The amount of income tax you pay depends on how much money you’ve earned in the past year as well as your filing status (e.g., single, married filing jointly, etc.), along with other factors. First, a bit more about what counts as taxable money:

•   Income that’s taxable includes your earnings from work, interest earned on savings accounts, and money made from investments or rental properties.

•   Certain forms of income may not have to be reported on your tax return. Some examples of income that may be nontaxable include child support payments, financial gifts, alimony, and employer-provided health insurance.

The U.S. tax system is progressive, which means the greater your income, generally the higher your overall tax rate. The idea behind a progressive system is that people who earn more are typically able to pay more in taxes.

Currently, there are seven tax brackets, ranging from 10% to 37%. Each bracket corresponds to specific income thresholds and are adjusted each year for inflation.

Tax season revolves around filing income tax returns each spring. Some details:

•   The typical deadline is April 15, though if that date falls on a weekend or holiday, the date will be moved to the next business day.

•   Those who are self-employed may pay quarterly estimated taxes.

•   You must file your federal income tax return with the IRS, by mail or electronically. In order to file, you must have all the necessary year-end income documents, including those from your employers and financial institutions.

•   The IRS recommends taxpayers file electronically, since it can take six weeks or more to process a paper return. Electronic files move much more quickly through the system.

When you fill out your tax return and file it with the IRS, you’ll find out if you’ve underpaid and still owe any taxes or if you’ve paid too much and are entitled to a refund. Salaried workers must complete an IRS Form W-4 to help their employer withhold the correct amount of federal income tax from their paychecks. This form can be changed to help correct for too much or too little taxes withheld during the previous year.

Brief History of How Income Taxes Came to Be

Now that you know what income tax is, here’s a quick look at how it came into being in America. The first federal income tax came about in 1861 as a way to finance the Civil War effort. A year later, Congress passed the Internal Revenue Act which created the Bureau of Internal Revenue, which eventually evolved into today’s IRS. But income tax didn’t have substantial support after the Civil War and was repealed in 1872.

Federal income tax made a short comeback in 1894, but the next year it was ruled unconstitutional by the Supreme Court. This verdict was based on the grounds it was a direct tax and not apportioned among the states on the basis of population.

In 1909, the 16th amendment to the Constitution was introduced, which would give the government the power to collect taxes without allocating the burden among the states in line with population. It was passed by Congress then, but it still needed to be ratified by 36 states. Ratification of the 16th amendment finally happened in 1913, giving Congress the legal right to impose a federal income tax. This laid the foundation for the tax system as it’s known today.

What Are the Different Types of Income Taxes?

Income taxes are primarily categorized based on who pays them (individuals or corporations) and the source of the income, such as wages, investments, or business profits. Here are some common types of income tax:

•   Individual or personal income tax. This type of tax is imposed on salaries, wages, investment earnings, or any other forms of taxable income a person or household earns. Thanks to deductions, tax credits, and exemptions, most people don’t end up paying taxes on all their income.

•   Business or corporate income tax. This kind of tax is based on business profits, minus the costs involved in doing business. According to the IRS, all businesses except partnerships must file an annual income tax return.

•   State and local income tax. Depending on where you live and work, you may have to pay state and local taxes. Currently, nine states (Alaska, Florida, Nevada, South Dakota, Texas, Tennessee, Washington, Wyoming, and New Hampshire) don’t have a state income tax. Some local governments impose a local income tax on people who live or work in a specific city, town, county, municipality, or school district. Both state and local taxes help pay for a wide range of services like roads, schools , and law enforcement. State and local taxes are generally much lower than federal income tax.

How Do I Know How Much I Owe in Income Taxes?

In order to figure out how much income tax you may owe, here are some steps:

•  You’ll want to know your filing status which will determine which tax bracket you fall under. The five filing status choices are single, married filing jointly, married filing separately, head of household, and qualifying widow(er) with dependent child.

•  Once you know how you’re going to file, you’ll need to gather up all your documents detailing your earned income, such as your W-2 and 1099 statements. When you have all of the information about how much money you earned, you can total it up, which amounts to your gross income.

•  The next step in knowing how much you owe in taxes is to calculate your adjusted gross income (AGI). You can do this by taking your total gross income from the year and subtracting any “above the line” adjustments, as they’re known, that you are eligible for. A list of adjustments to income can be found on Schedule 1 of Form 1040. They include, up to certain limits, educator expenses, the deductible part of self-employment tax, and student loan interest payments

Once you’ve got your AGI number, you can then subtract any standard or itemized deductions to get your taxable income amount. Itemized deductions may include charitable donations, paid mortgage interest, property taxes, and unreimbursed medical and dental expenses. An alternative to itemized deductions is the standard deduction option. A standard deduction is a set dollar amount based on your filing status. The vast majority of Americans take the standard deduction when filing their federal income taxes. When you have your taxable income number, you can then pinpoint your tax bracket and determine your tax rate.

Recommended: What Are the Common Types of Payroll Deductions?

Ways to Lower Your Taxable Income

You may be able to reduce your taxable income by taking advantage of any pre-tax savings opportunities available to you. Consider these tips:

•  Take advantage of employer-sponsored retirement plans. Contributions to a 401(k) for example, are made with pre-tax dollars, meaning they lower your current taxable income, and you pay taxes later when you withdraw the money in retirement, potentially at a lower tax rate

•  Enroll in a health spending account (HSA) or flexible spending account (FSA) if your company offers them. A health savings account allows pretax contributions to be used for upcoming healthcare costs for employees with high-deductible health insurance plans. If your employer doesn’t offer one, you can open a HSA on your own, provided you meet the eligibility requirements.

With a flexible spending account, you set aside pre-tax dollars from your paycheck to pay for eligible out-of-pocket healthcare or dependent care expenses. This can help you save money on taxes while covering costs like copays, prescriptions, dental, and vision care.

•  Figure out what tax deductions you can claim. To save on taxes, you can claim a variety of deductions that reduce your taxable income. You have two main options: take the standard deduction (a fixed amount based on your filing status) or itemize your deductions if your eligible expenses are greater than the standard amount.

•  Check that your tax withholding is appropriate. If you find that you owe a significant amount in taxes come tax day, or that you’re due a large refund, you may need to adjust your W-4 form. While a refund may seem like good news, it essentially means you’re giving the government an interest-free loan throughout the year. It’s also a good idea to update your W-4 form if you have a major life change, such as the birth of a child, marriage, divorce, or a significant pay raise.

Recommended: 7 Steps to Prepare for Tax Season

Tips for Filing Income Taxes Correctly

Avoiding mistakes when filing your tax return can help prevent you from missing out on a bigger refund than you claimed or triggering a tax audit by the IRS.

Here are some suggestions on how to fill out your tax return when filing whether you’ve done it before or are doing your taxes for the first time:

•  Gather all of your pertinent paperwork and make sure you’re not missing tax forms. You’ll need a W-2 form from each employer, other earning and interest statements, and receipts for any expenses you’re itemizing on your return. Any income and investment interest forms should be mailed or sent electronically to you in January. If you haven’t received them in the mail, you can typically find and download these documents online through your bank, mortgage provider, or payroll company. If you still haven’t received your tax statements or can’t find them online, call the necessary people to get your documents as soon as possible.

•  When filling out your return, make sure your basic information is accurate, such as your name, Social Security number, and filing status. The IRS will also be double-checking your numbers against your tax statement documentation.

•  Take care when disclosing your income. Report your financial information exactly as it’s reported to the IRS on forms such as your W-2 and 1099s.

•  Sign your tax return. According to the IRS, an unsigned tax return is invalid. If you’re married and filing jointly, in most cases both spouses must sign the form. Filing electronically can help taxpayers avoid submitting an unsigned form by using a digital signature.

•  Consider using a tax preparation software program or having a professional tax preparer do your return. Online software is often fairly straightforward if your situation is pretty simple. However, if your tax return is more involved and complicated, it may be worth it to hire a tax professional. An experienced tax preparer can help ensure your tax return will be filed correctly and on time.

•  Try not to put off filing your taxes until the last minute or you run the risk of missing the tax filing deadline.

•  You can file for a tax extension of six months, but know that any taxes owed are still due on time; it’s the return that can be filed later.

The Takeaway

Income taxes are a way for the government to collect revenue from citizens and businesses. Besides paying federal income taxes, you may need to also pay state and local taxes. There are ways you may be able to lower your taxable income, and doing so may result in paying less in taxes or getting a bigger refund. Knowing how to file correctly and on time can help maintain your financial well-being.

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

Can I lower my income taxes?

Yes, you may be able to lower your income taxes by reducing your taxable income. You can do this by taking advantage of pre-tax savings opportunities, such as contributing to an employer-sponsored retirement plan (like a 401(k)), or enrolling in a Health Savings Account (HSA) or Flexible Spending Account (FSA). You can also lower your taxable income by claiming deductions. This could be the standard deduction or, if your eligible expenses are high enough, by itemizing deductions like mortgage interest or charitable donations.

How can I determine how much income tax I’m required to pay?

To determine how much income tax you owe, you first need to establish your filing status (e.g., single, married filing jointly) and gather all income documents like W-2s and 1099s to calculate your gross income. Next, you calculate your adjusted gross income (AGI) by subtracting eligible “above the line” adjustments. Finally, subtract either the standard deduction or your itemized deductions from your AGI to find your taxable income. This taxable income amount determines your tax bracket and your resulting tax liability.

Does income tax improve your money management?

Yes, understanding income tax can significantly improve your money management. By learning how tax brackets and deductions work, you can make informed decisions about your withholding (using Form W-4) to ensure you are not giving the government an interest-free loan through a large refund. In addition, taking advantage of pre-tax savings, like 401(k) and HSA contributions, is a key money management strategy that directly lowers your taxable income, helping you save money and invest for the future.

Photo credit: iStock/Charday Penn

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

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.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
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.

^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

SOBNK-Q425-058

Nursing can be a rewarding career in a couple of important ways. It involves caring for the health of others, which can be satisfying. A nursing degree can also mean job stability and a good paycheck. According to the Bureau of Labor Statistics, demand for nurses will increase at 5% per year, faster than the average career growth. And the average registered nurse salary was at a median of $93,600 per year in 2024. Compare that with the median US salary for the same period of $61,984, and you can see that nursing can be a lucrative career.

The average nursing salary will vary depending on the type of nursing you do. For instance, there’s the average nurse salary vs. the average registered nurse salary vs. the average nurse practitioner salary. Qualifications and other factors will determine how much you make as a nurse.

Read on to learn more about nursing salaries, the cost of getting a nursing degree, and ways to pay for it. This information can help you decide if nursing is the right career path for you, and, if so, which type of nursing you want to pursue.

Average Salaries for Different Types of Nurses

If you’re considering nursing as a career and wondering how much nurses make, it’s vital to know about the different types of nurses. Each has its own education and certification requirements.

•  A licensed vocational nurse (LVN) or licensed practical nurse (LPN) is one of the lowest-paid jobs within the nursing field. Job responsibilities are typically similar for LVN and LPNs. California and Texas use the term LVN, while the rest of the country uses the designation LPN. These positions also have the lowest educational requirements.

While LVN/LPN roles don’t always require a college education, there are usually state-approved training certification programs. Most of these courses take aspiring LVN/LPNs one year to complete, and then they must pass the NCLEX-PN examination for state licensing. How much does a nurse make a year with this kind of credential? The average salary for LVN/LPNs as of 2024 was about $62,340 annually.

•  Aspiring registered nurses (RN) typically need a bachelor’s or associate degree from an accredited program. There are also some accelerated programs available and some second degree programs for students who already have a bachelor’s degree in another field.

After successfully completing their chosen coursework, nursing students must then pass the NCLEX-RN exam in order to become a certified RN. In addition, RNs usually must obtain a state license after passing the NCLEX-RN exam.

To drill down on the details here, know that each state has its own licensing board. You may want to research the specific requirements in the state where you plan to practice. How much do RNs make? The average RN salary as of 2024, as noted above, was approximately $93,600 per year. (Below you will find state-by-stage nursing salaries, though not specifically for RNs.)

Next, consider the career of a Clinical Nurse Specialist (CNS). This type of nurse has gone a step beyond RN and pursued additional education. At a minimum, you must have a master of science in nursing (MSN) to become a CNS.

A CNS typically trains extensively in a specialty area, such as emergency medicine, oncology, or women’s health. In 2024, the average salary for a CNS was $94,945 annually and it may be well above $100,000 depending on location, which is higher than the RN salary, reflecting the additional education and skills.

•  A Nurse Practitioner (NP) holds an advanced degree, but their responsibilities vary slightly when compared with a CNS. For example, in most states, a nurse practitioner is able to prescribe medication, while a CNS is not. The average nurse practitioner salary in 2024 was $137,000 annually.

Average Salaries and Location

Here’s another factor that can impact the average nurse’s salary: location. After all, wages and overall cost of living can vary dramatically depending on whether you live in, say, a small town or close to a pricey urban center.

Check this chart to see how average nurse salaries compare state by state. Note that these figures reflect LPN salaries, which are at the lower end of the spectrum, but they can give you an idea of how much nurses make by location. This could be good information to consider when deciding where to practice.

How Much Does it Cost to Get a Nursing Degree?

The cost of getting a nursing degree varies based on the type of nursing program you choose. Each of the nursing positions listed above requires different degrees and certification.

•  The process to become an LVN/LPN generally costs between $2,000 and $18,000.

•  Taking an RN two-year associate program can cost $6,000 to $25,000.

•  An alternative is to become an RN through a four-year bachelor’s program. This process works similarly to most other bachelor’s degree programs and typically costs the same as a four-year college or university.

•  In addition to having already been an RN, both CNS and NP careers require advanced degrees. Typically, a masters of science in nursing (MSN) is required for both positions, which can cost between $18,000 to $57,000 in total.

•  Some choose to further their education, becoming a Doctor of Nursing Practice (DNP). These degrees can be expensive but also have the potential to increase a nurse’s salary. After a master’s degree, expect to pay around an additional $21,000 to $39,000, but your nursing salary is likely to rise, too.

There are usually costs beyond nursing school tuition. You’ll likely have to buy textbooks and supplies like a lab coat, scrubs, and a stethoscope. Many programs also charge additional lab fees each semester. Many schools will require nursing students to take out liability insurance and get some mandatory immunizations.

After graduating from your chosen program(s), you’ll also likely want to factor in the cost of licensing and exam fees as you enter the job market.

Paying for Your Nursing Degree

Becoming a nurse can be a pricey process, depending on the path you choose. But there are options available to help students pay for their nursing degree. The American Association of Colleges of Nursing has a database of scholarships for nursing schools. As you may know, scholarships don’t need to be repaid. This can make them an especially valuable resource in making ends meet as a nursing student.

In addition, federal aid, including grants, scholarships, work-study, and federal student loans could provide some relief. To apply, students must fill out the Free Application for Federal Student Aid (FAFSA®) each year.

Student Loan Forgiveness Options for Nurses

There are a number of student loan forgiveness programs available to nurses. Keep in mind that each typically has its own program requirements, so it’s helpful to review them closely to determine whether you qualify.

•  Public Service Loan Forgiveness (PSLF) forgives certain federal Direct loans after 10 years of qualifying, on-time payments. This program is open to borrowers who work for a qualifying organization. You can find details online about qualifying for the PSLF program to see if you could benefit from it.

•  The NURSE Corps Loan Repayment Program will repay a portion of a nurse’s eligible student loans when they work full time at a Critical Shortage Facility or as a faculty member at a qualifying nursing school. Those accepted by the program are eligible to have 85% of their outstanding loan balances forgiven over a two-year commitment.

•  The National Health Service Corps Loan Repayment Program provides loan forgiveness to qualifying nurses who commit to working for two years in clinical practice at a National Health Service Corps site.

Repaying Student Loans after Nursing School

If you borrowed federal or private student loans to help you pay for nursing school, developing a repayment strategy can be valuable. Not only will it set you on a path to repaying your debt, it can teach you valuable budgeting skills as well.

If you don’t qualify for any of the available loan forgiveness options, federal student loans come with a few different student loan repayment plans so you can find the option that works best for your budget.

If you relied on private student loans to help you pay for your tuition at nursing school, you may want to review your repayment terms. Each lender will determine their own terms and conditions for the loans they lend.

As you develop a game plan to help you repay your student loans, one option to consider is student loan refinancing.

When you refinance student loans, you take out a new loan with new terms. This loan can then be used to repay your existing loans. If you borrowed multiple loans, that means you could have the option to consolidate them into one single monthly payment — potentially with a lower interest rate.

However, it’s important to keep in mind a couple of factors:

•  You may pay more interest over the life of the loan if you refinance with a longer term.

•  If you are considering refinancing federal student loans, know that they come with an array of benefits and protections that are forfeited if you refinance.

To see how refinancing could impact your student loan, you can take a look at this student loan refinancing calculator.

The Takeaway

Nursing can be a challenging but rewarding profession, and the average nurse salary of $93,600 could provide a well-paying career. There are different kinds of nursing degrees and positions, so it’s wise to do your research to understand what each one requires and which might best suit your needs. Also, financing your education as a nurse can also need research to understand the obligation and how you might fund it.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

Which U.S. state pays nurses the most?

The state that pays nurses the most is the state of Washington, where LPNs make an average of $79,970 a year. California isn’t far behind with an annual LPN salary of $79,090. Keep in mind that salaries for LPNs are at the lower end of the nursing salary spectrum. An RN in Washington state makes an average of $99,519 a year by comparison.

What type of nurse makes $100,000 a year?

A nurse practitioner (NP) can make well over $100,000 a year. For example, in 2024, the average NP made $137,000 annually. This type of nurse has an advanced degree, typically a master’s of science in nursing. These professionals provide many of the same services as doctors, including performing medical procedures and prescribing medication.

Can an RN make $200,000 a year?

Yes, it’s possible for an RN to make $200,000 a year, especially if they work in high-demand positions such as certified nurse anesthetists or travel nursing, or hold an administrative or leadership position.

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.