What Is Tax Literacy?

Tax literacy is the knowledge needed to understand and participate in the tax system. In the United States, that includes knowing what income is taxable, which deductions and credits may apply, when taxes are due, and how to file required forms correctly.

Tax literacy matters because most people who earn income are responsible for paying taxes. Understanding the basics can help taxpayers avoid errors, identify potential deductions or credits, and reduce the risk of penalties or audits.

Tax literacy can also help individuals make more informed financial decisions throughout the year—not just during tax season.

Why Is Tax Literacy Important?

Tax literacy is especially important because the tax system can be complex and changes regularly. A basic understanding of taxes can help people:

• File more accurate returns
• Understand deductions and credits
• Avoid missing important forms
• Reduce the risk of penalties
• Better understand refunds or payments owed
• Build confidence in financial decision-making

According to Caroline Bruckner, managing director of the Kogod Tax Policy Center, “Tax literacy is foundational for financial literacy—particularly for new business owners. Filing accurate tax returns is essential to being able to access capital and establish creditworthiness. Developing tax literacy is challenging because tax laws change every year and most schools don’t teach basic tax concepts or tax return filing.”

How Can You Improve Tax Literacy?

One of the best ways to improve tax literacy is to stay curious and engaged throughout the filing process.

Helpful steps include:

• Reading updates from the IRS
• Reviewing tax forms before submitting them
• Asking questions when something is unclear
• Speaking with a tax professional when needed
• Using educational resources from tax filing software
• Comparing current forms with prior-year returns

Even when using tax software or working with a preparer, taxpayers can build knowledge by reviewing the information carefully and understanding what the numbers mean.

How Is AI Already Used in Tax Filing?

Many taxpayers have already used AI in the tax filing process, even if they did not realize it.

Some tax filing platforms use AI or automation to pull information from previous returns, prefill forms, identify relevant data, and guide users through questions. AI-powered chatbots and virtual assistants are also increasingly used to answer common tax questions during the filing process.

The IRS has also used artificial intelligence and machine learning to process large volumes of documents, identify patterns, flag potential issues, and streamline parts of tax administration.

How Can AI Improve Tax Literacy?

AI tools can support tax literacy by making tax information easier to access and understand. For example, a reliable AI tool may help users ask basic tax questions, clarify unfamiliar terms, or better understand forms and filing steps.

AI can be useful because it can:

• Explain tax concepts in plain language
• Answer questions outside business hours
• Help users understand filing steps
• Support learning for common tax scenarios
• Make tax information feel more accessible

However, AI should be used as a learning tool—not as a replacement for tax knowledge or professional guidance.

What Are the Risks of Using AI for Taxes?

AI tools can make mistakes, misunderstand context, or provide incomplete information. That risk is especially important for people with complex tax situations involving multiple income sources, business ownership, investments, or specialized forms.

Overreliance on AI can also limit tax literacy. If a tool completes the process without the user understanding what is happening, the taxpayer may be less likely to catch errors.

Bruckner cautions that AI-generated tax information should always be verified. “Tax administration is so complex; however, there are online resources and tools that can help explain basic concepts. AI can be really helpful in this respect, but people need to be cautious and not accept an AI-generated answer at face value. People researching tax questions always need to take extra steps to verify that any information that an AI source has generated is accurate.”

What Should You Keep in Mind When Using AI for Taxes?

AI can help taxpayers learn and organize information, but it does not remove personal responsibility from the filing process.

Taxpayers should:

• Verify AI-generated answers
• Review all forms before submitting
• Use trusted sources such as the IRS
• Consult a tax professional for complex questions
• Avoid entering sensitive information into unreliable tools
• Treat AI as support, not final authority

As Bruckner explains, “This is part of what we teach students at KSB in how to use AI effectively and to trust but verify any AI-generated response. AI is not yet at the point where it can generate an accurate tax return. Critical thinking and research are still needed.”

How Does Kogod Prepare Students to Use AI Responsibly?

At Kogod, students learn to approach AI with both curiosity and critical thinking. That means understanding how AI tools can improve efficiency and access to information while also recognizing their limitations.

In tax, business, and policy contexts, responsible AI use requires users to verify information, evaluate sources, and understand the underlying concepts well enough to identify possible errors.

Tax literacy and AI literacy work best together. AI can make tax information more accessible, but strong tax literacy helps people use those tools more carefully and confidently.