Financial Topics Archives | Page 329 of 808

Feb

2024

HSA for Retirement: Rules, Benefits, and Getting Started

By MP Dunleavey | Budgeting & Goals, invest | No Comments

A health savings account, or HSA, not only provides a tax-free way to pay for medical expenses now, those tax savings can extend to retirement as well.

An HSA provides triple tax benefits to the account holder. You set aside money pre-tax (similar to a 401(k) or IRA), it grows tax free, and withdrawals for qualified medical expenses are also tax free.

HSAs can be a boon in retirement because you always have access to the account, even if you change jobs, and you never have to “use it or lose it,” so your savings can grow over time. Thus, you can use HSA funds to pay for qualified medical expenses at any time, tax free, now or when you retire.

The other good news is that after age 65 you can use the funds for non-qualified expenses, too; you just have to pay income tax on the funds you withdraw.

What Is an HSA?

A Health Savings Account is a type of tax-advantaged savings account for individuals with a high-deductible health care plan (HDHP) — defined by the IRS as any plan with a deductible of at least $1,600 for an individual or $3,200 for a family.

That said, not all high-deductible plans are eligible for a health-savings account. When selecting a plan, make sure it says “HSA eligible.”

Anyone who fits the criteria is eligible to open an HSA and save pre-tax dollars: up to $4,150 a year for individuals and up to $8,300 for families for the 2024 tax year — a 7% increase over the 2023 contribution limits. If you’re 55 or older at the end of the tax year, you can contribute an additional $1,000 — similar to the catch-up contributions allowed with an IRA.

An employer can also make a matching contribution into your HSA, though it’s important to note that total employer and employee contributions can’t exceed the annual limits. So if you’re single, and your employer contributes $1,500 to your HSA each year, you can’t contribute more than $2,650 for 2024.

Rules and Restrictions on HSA Contributions

You have until the tax-filing deadline to make your annual HSA contribution.

• For tax year 2023, you have until April 15, 2024.

• For tax year 2024, you have until April 15, 2025.

It’s important to know the amount you can contribute to your account, both so you can take advantage of your HSA and to make sure you’re not penalized for excess contributions. If the amount you deposit for the year in your HSA is over the defined limit, including any employer contributions and catch-up contributions, you’ll owe ordinary income tax on that amount, plus a 6% penalty.

Another caveat: Once you enroll in or become eligible for Medicare Part A benefits, you can no longer contribute money to an HSA.

What Are HSA Withdrawals?

You can withdraw funds from your HSA to pay for qualified medical and dental health care expenses, including copays for office visits, diagnostic tests, supplies and equipment, over-the-counter medications and menstrual care products. Health insurance premiums are not included as qualified expenses, however.

One significant benefit of HSA accounts is that, unlike flexible spending accounts (FSA), the money in an HSA doesn’t have to be used by the end of the year. Any money in that account remains yours to access, year after year. Even if you change jobs, the account comes with you.

Before age 65, there is a 20% penalty for withdrawing funds from an HSA for non-medical expenses, on top of ordinary income tax. After age 65, HSA holders can also make non-medical withdrawals on their account, though ordinary income tax applies.

How Do Health Savings Accounts Work?

HSAs are designed to help consumers play for medical expenses when they have a high-deductible health plan (HDHP). That’s because typically an HDHP only covers preventive care before the deductible, so most types of medical care would have to be paid out of pocket as they’re applied to the deductible amount.

Having a tax-advantaged plan like an HSA gives people a bit of a break on medical expenses because they can save the money pre-tax (meaning any money you save in an HSA lowers your taxable income), and it grows tax free, and you withdraw the money tax free as well, as long as you’re paying for qualified expenses.

As noted above, you can withdraw your HSA funds at any time. But if you’re under age 65 and paying for non-qualified expenses, you’ll owe taxes and a 20% penalty on the amount you withdraw.

After age 65, you simply owe taxes on non-qualified withdrawals, similar to withdrawal rules for a 401(k) or traditional IRA.

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¹Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

Can an HSA Be Used for Retirement?

HSAs are not specifically designed to be a retirement planning vehicle, but you can use HSA funds in retirement, since the money accumulates in your account until you withdraw it tax-free for qualified medical expenses.

There’s no “use it or lose it” clause with an HSA account, so any unused funds simply rollover to the following year. This offers some potential for growth over time.

That said, the investment options in an HSA account, unlike other designated retirement accounts, tend to be limited. And the contribution caps are lower with an HSA.

You could also use your HSA funds to pay for other retirement expenses after age 65 — you’ll just have to pay income tax on those withdrawals.

Recommended: How to Set Up a Health Savings Account

3 Reasons to Use an HSA for Retirement

Though they aren’t specifically designed to be used in retirement planning, it’s possible to use an HSA for retirement as a supplement to other income or assets. Because you can leave the money you contribute in your account until you need it for qualified medical expenses, the funds could be used for long-term care, for example.

Or, if you remain healthy, you could tap your HSA in retirement to pay for everyday living expenses.

There are several advantages to including an HSA alongside a 401(k), Individual Retirement Account (IRA), and other retirement savings vehicles. An HSA can yield a triple tax benefit since contributions are tax-deductible, they grow tax-deferred, and assuming you withdraw those funds for qualified medical expenses, distributions are tax-free.

If you’re focused on minimizing your tax liability as much as possible prior to and during retirement, an HSA can help with that.

Using an HSA for retirement could make sense if you’ve maxed out contributions to other retirement plans and you’re also investing money in a taxable brokerage account. An HSA can help create a well-rounded, diversified financial plan for building wealth over the long term. Here’s a closer look at the top three reasons to consider using HSA for retirement.

1. It Can Lower Your Taxable Income

You may not be able to make contributions to an HSA in retirement, but you can score a tax break by doing so during your working years. The money an individual contributes to an HSA is deposited pre-tax, thus lowering their taxable income.

Furthermore, any employer contributions to an HSA are also excluded from a person’s gross income. Meaning: You aren’t taxed on your employer’s contributions.

The money you’ve deposited in an HSA earns interest and contributions are withdrawn tax-free, provided the funds are used for qualified medical expenses. In comparison, with a Roth IRA or 401(k), account holders are taxed either when they contribute (to a Roth IRA) or when they take a distribution (from a tax-deferred account like a traditional IRA or 401(k)).

Using HSA for retirement could help you manage your tax liability.

2. You Can Save Extra Money for Health Care in Retirement

Unlike Flexible Spending Accounts that allow individuals to save pre-tax money for health care costs but require them to use it the same calendar year, there is no “use it or lose it” rule with an HSA. If you don’t use the money in your HSA, the funds will be available the following year. There is no time limit on spending the money.

Because the money is allowed to accumulate, using an HSA for retirement can be a good way to stockpile money to pay for health care, nursing care, and long-term costs (all of which are qualified expenses) if needed.

While Americans can enroll in Medicare starting at age 65, most long-term chronic health care needs and services aren’t covered under Medicare. Having an HSA to tap into during retirement can be a good way to pay for those unexpected out-of-pocket medical expenses.

3. You Can Boost Your Retirement Savings

Beyond paying for medical expenses, HSAs can be used to save for retirement. Unlike a Roth IRA, there are no income limits on saving money in an HSA.

Some plans even allow you to invest your HSA savings, much like you would invest the funds in a 401(k).

The investments available in any given HSA account depend on the HSA provider. And the rate of return you might see from those investments, similar to the return on a 401(k), depends on many factors.

Investing can further augment your retirement savings because any interest, dividends, or capital gains you earn from an HSA are nontaxable. Plus, in retirement, there are no required minimum distributions (RMDs) from an HSA account — you can withdraw money when you want or need to.

Some specialists warn that saving for retirement with an HSA really only works if you’re currently young and healthy, rarely have to pay health care costs, or can easily pay for them out of your own pocket. This would allow the funds to build up over time.

If that’s the case, come retirement (or after age 65) you’ll be able to use HSA savings to pay for both medical and non-medical expenses. While funds withdrawn to cover medical fees won’t be taxed, you can expect to pay ordinary income tax on non-medical withdrawals, as noted earlier.

HSA Contribution Limits

If you are planning to contribute to an HSA — whether for immediate and short-term medical expenses, or to help supplement retirement savings — it’s important to take note of HSA contribution limits. If your employer makes a contribution to your account on your behalf, your total contributions for the year can’t exceed the annual contribution limit.

2023 Tax Year HSA Contribution Limits: Remember that you can contribute to your HSA for tax year 2023 until April 15, 2024.

• $3,850 for individual coverage

• $7,750 for family coverage

• Individuals over age 55 can contribute an additional $1,000 over the annual limit

As with opening an IRA, you have until the tax filing deadline to make a contribution for the current tax year. So if you wanted to contribute money to an HSA for tax year 2023, you’d have until April 15, 2024 to do so.

2024 Tax Year HSA Contribution Limits: Remember that you can contribute to your HSA for tax year 2024 until April 15, 2025.

• $4,150 for individual coverage

• $8,300 for family coverage

• Individuals over age 55 can contribute an additional $1,000 over the annual limit

How to Invest Your HSA for Retirement

An HSA is more than just a savings account. It’s also an opportunity to invest your contributions in the market to grow them over time. Similar to a 401(k) or IRA, it’s important to invest your HSA assets in a way that reflects your goals and risk tolerance.

That said, one of the downsides of investing your HSA funds is that these accounts may not have the wide range of investment options that are typically available in other types of retirement plans. Investment fees are another factor to keep in mind.

It’s also helpful to consider the other ways you’re investing money to make sure you’re keeping your portfolio diversified. Diversification is important for managing risk. From an investment perspective, an HSA is just one part of the puzzle and they all need to fit together so you can make your overall financial plan work.

HSA for Retirement vs Other Retirement Accounts

Although you can use an HSA as part of your retirement plan, it’s not officially a retirement vehicle. Here are some of the differences between HSAs and other common types of retirement accounts. Note: All amounts reflect rules/ limits for the 2024 tax year.

	HSA	Traditional IRA	401(k)
2024 annual contribution limit	$4,150 (individual) $8,300 (family)	$7,000	$23,000
Catch up contribution	+ $1,000 for those 55 and older	+ $1,000 for those 50 and older (total: $8,000)	+ $7,500 for those over 50 (total: $30,500)
Contributions & tax	Pre-tax	Pre-tax	Pre-tax
Withdrawals	Can withdraw funds at any age, tax free, for qualified medical expenses.	After age 59 ½ withdrawals are taxed as income.	After age 59 ½ withdrawals are taxed as income.
Penalties/taxes	Withdrawals before age 65 for non-qualified expenses incur a 20% penalty and taxes. Withdrawals after age 65 for non-qualified expenses are only taxed as income.	Before age 59 ½ withdrawals are taxed, and may incur an additional 10% penalty. Some exceptions apply.	Before age 59 ½ withdrawals are taxed, and may incur an additional 10% penalty. Some exceptions apply.
RMDs	No	Yes	Yes

As you can see, an HSA is fairly similar to other common types of retirement accounts, like traditional IRAs and 401(k)s, with some key differences. For example, you can generally contribute more to an IRA and to a 401(k) than you can to an HSA, as an individual.

While contributions are made pre-tax in all three cases, an HSA offers the benefit of tax-free withdrawals, at any time, for qualified medical expenses.

Note that Roth IRAs also have a tax-free withdrawal structure for contributions, but not earnings, unless the account holder has had the Roth for at least 5 years and is over 59 ½. The rules governing Roth accounts, including Roth IRAs and Roth 401(k)s can be complicated, so be sure you understand the details.

In addition, HSA rules allow the account holder to maintain the account even if they leave their job. There is no need to do a rollover IRA, as there is when you leave a company and have to move your 401(k).

💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

What Happens to an HSA When You Retire?

An HSA doesn’t go away when you retire; instead, the money remains available to you until you need to use it. As long as withdrawals pay for qualified medical expenses, you’ll pay no taxes or penalties on the withdrawals. And your invested contributions can continue to grow as long as they remain in the account.

One advantage of using an HSA for retirement versus an IRA or 401(k) is that there are no required minimum distributions. In other words, you won’t be penalized for leaving money in your HSA.

How Much Should I Have in an HSA at Retirement?

The answer to this question ultimately depends on how much you expect to spend on healthcare in retirement, how much you contribute each year, and how many years you have to contribute money to your plan.

Say, for example, that you’re 35 years old and making contributions to an HSA for retirement for the first time. You plan to make the full $4,150 contribution allowed for individual coverage for the next 30 years.

Assuming a 5% rate of return and $50 per month in HSA medical expenses, you’d have just over $242,000 saved in your HSA at age 65. Using an HSA calculator to play around with the numbers can give you a better idea of how much you could have in your HSA for retirement if you’re saving consistently.

When Can I Use My HSA Funds?

Technically your HSA funds are available to you at any time. So if you have to pick up a prescription or make an unscheduled visit to the doctor, you could tap into your HSA to pay for any out-of-pocket costs not covered by insurance.

If you’re interested in using an HSA in retirement, though, it’s better to leave the money alone if you can, so that it has more opportunity to grow over time.

The Takeaway

A health savings account can be a valuable tool to help pay for qualified out-of-pocket medical costs, tax-free right now. But an HSA can also be used to accumulate savings (and interest) tax-free, to be used on medical and non-medical expenses in retirement.

While an HSA can be useful for retirement, especially given the rising cost of long-term care and other medical needs, note that the annual contribution limit for individuals is much lower than other retirement accounts. Also, the investment options in an HSA may be limited compared with other retirement plans.

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Feb

2024

Preparing to File Taxes as a Freelancer

By Timothy Moore | Budgeting & Goals, money, Money & Life | Comments Off

For some people, freelancing is the way they earn their living, relishing the freedom and flexibility of this type of work. For others, it’s a smart way to bring in some income in addition to a salary. Regardless of whether you’re managing your freelance business as a full-time endeavor or a side hustle, one fact is true: You’ve got to pay taxes on your earnings.

In this guide, you’ll learn about the steps to take in your situation, including:

• How do you pay taxes as a freelancer?

• Why are freelance taxes higher?

• What are some ways to reduce taxable income?

• What deductions should freelancers take?

• What should freelancers know about tax refunds?

How Taxes for Freelancers Are Different

The first thing to note is that taxes for freelancers are notably different in two major ways: Freelancers pay a larger percentage of their income (because of self-employment tax), and they’ve got to make estimated tax payments every quarter.

What Is Self-Employment Tax?

For the 2023 tax year, self-employment tax is 15.3%. That’s 12.4% for Social Security and 2.9% for Medicare.

That doesn’t mean that’s all that freelancers pay. Self-employment tax is what freelancers pay on top of regular income taxes. The percentage you pay in income taxes depends on what tax bracket you’re in but can range from 10% to 37%.

Why do freelancers pay a self-employment tax? When you’re an employee for a business who receives a W-2 form, your company pays some taxes for you.

But if you’re a freelancer — whether a writer, photographer, dog walker, or consultant — your clients don’t pay any taxes for you, so you’ve got to pick up the slack.

And don’t forget: You may also have to pay state and local taxes, depending on where you live.

What Are Quarterly Taxes?

Most people think of April 15 as the dreaded Tax Day for all Americans, when they have to pay their taxes. But taxes aren’t actually due on April 15: They’re due when you earn the money.

That’s why employers withhold taxes from every paycheck. Tax season is just that special time where the IRS wants you to go over the numbers and make sure the right amount was withheld — and pay up if you actually owe more. (Or, if you overpaid, file your return to claim a refund.)

But since taxes aren’t withheld when freelancers earn revenue from clients, the government expects freelancers to make quarterly tax payments throughout the year.

Freelancers have two options:

1. Pay 100% of the taxes they owed the prior year, split over four payments.

2. Pay 90% of the taxes they’ll owe for the current year, split over four payments.

Note that these percentages may be different if you’re a farmer, fisherman, or high-income earner.

Estimated taxes are among the most complicated parts of being a freelancer, and you can face underpayment penalties if you don’t send Uncle Sam your fair share throughout the years.

You can check out the IRS’s guidelines for estimated taxes , but a tax professional may be worth the cost if you’re confused.

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Paying Taxes as a Freelancer

Now that you understand that freelancers must pay more in taxes and that they need to keep track of more tax deadlines, consider the actual process for freelancer tax filing.

Here’s how to pay freelance taxes in five steps.

1. Determine If You Have to Pay Freelancer Income Tax

First and foremost, it’s a good idea to make sure you actually have to pay freelancer taxes. If you fit the bill of the IRS’s definition of an independent contractor, you’ll have to file as a freelancer and will be subject to self-employment taxes.

The IRS says you’re an independent contractor “if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”

It’s a rather broad designation and might fit traditional freelance gigs like writers and graphic designers, but it can also apply to app-based workers, like drivers for Uber and Lyft, and even doctors, lawyers, and veterinarians.

Even if you receive a W-2 from an employer but made other revenue on the side, you’re still subject to freelancer income taxes — and must make estimated payments on that income.

2. Calculate How Much You Earned

As a freelancer, you may receive 1099-NECs from clients for the work you do, detailing just how much money you made from them (as long as you made $600 or more).

Even if you don’t receive a 1099, you still have to report any income you made on your tax return. This means paying taxes if you are paid on Venmo or another platform versus by check or a direct deposit.

If you don’t declare the income, you’re committing tax fraud — and the IRS can find out during an audit.

You may want to use a tax preparation checklist to help you organize these materials. You might start by compiling all your 1099-NECs and any other income forms, including 1099-INTs, 1099-Ks, 1099-MISCs, and W-2s, and then input them on your tax return or into your tax software. If you have additional income not represented by any forms, you’ll be able to report that as well.

3. Compile Your Business Expenses

As a freelancer, you can deduct genuine business expenses from your taxable income. The more expenses you have, the lower your adjusted gross income — and the less you have to pay in taxes.

These are called tax deductions. Many tax filers choose to take the standard deduction: $13,850 for single people or married individuals filing separately and $27,700 for married couples filing jointly. However, freelancers with a lot of business expenses might earn a larger deduction by itemizing all their business expense deductions.

Common Tax Deductions for Freelancers

Business expenses can vary significantly depending on the kind of work you do, but you may be able to to use some of these freelancer tax deductions, like:

• A portion of your rent or mortgage (your home office deduction)

• Phone and internet bills

• Any computer and software expenses

• Automotive expenses, including miles on your car when used for business (and only for business)

• Office supplies

• Travel expenses

• Marketing and advertising expenses

• Continuing education

Freelancers may also be able to take the qualified business income deduction and self-employment tax deduction.

Other Tax Deductions and Tax Credits

Business expenses may apply to freelancers specifically, but independent contractors can take advantage of other common tax deductions and credits.

Other common tax deductions include mortgage interest payments, charitable contributions, student loan interest payments, and the state and local tax deduction.

Tax credits are also a useful tax tool and can greatly reduce your tax bill as a freelancer. Some popular tax credits include the child tax credit, Earned Income Tax Credit, and electric vehicle tax credit.

Recommended: Fastest Ways to Get Your Tax Refund

4. Account for Estimated Payments

If you made estimated tax payments the previous year, don’t forget to apply those to your tax form when filing. After all, if you’ve handed over a chunk of change to the IRS already, you’ll want credit for it.

You’ll add your total payments to line 26 on Form 1040 if filling out the form yourself, but most tax software and accountants should prompt you for this information.

5. File and Calculate Estimated Payments

The last step in how to pay freelance taxes: You’re now ready to complete your forms, and send in your tax return and any payments that you owe. And it’s not necessarily just federal taxes that are needed for freelancer tax filing: Depending on where you live, you may owe state, local, and school district income taxes as well.

After filing, surprise: You’re not done yet. You’ll also need to estimate taxes for the current year. Your first quarterly payment is due on Tax Day in April.

If you’re working with an accountant, they can help you calculate how much you’ll likely owe and print out vouchers for you to mail in with your payments. If you wind up making significantly more or less throughout the year, you can adjust your estimated payments to match. That’s part of learning how to budget on a fluctuating income.

Freelancer Tax-Filing Tips

Freelancing and taxes can seem complicated. Here are tips to help you save money and hit all your deadlines.

Plan for Retirement as a Freelancer

Reducing your taxable income is helpful when you have to pay significantly more in taxes on your earnings. One way to do this — and prepare for your future — is to open a retirement account and make pre-tax contributions.

You can contribute to a traditional IRA, but there are also retirement plans designed for self-employed individuals, including a SEP IRA and a solo 401(k). It’s worth educating yourself about how these work and contribution limits so you can find the best option for your financial situation and aspirations.

Research Deductions

You may be tempted to take the standard deduction when filing, but if you have a lot of business expenses, you may earn a larger tax break by itemizing. Tax software and accountants generally know all the different types of taxes and guidelines. They can help you find all the tax deductions you qualify for, but it never hurts to do some research on your own.

Stay Organized

Organization is crucial when running your own business — and that holds true at tax time. By organizing your bills and tracking your income throughout the year (even on a daily basis), you should have good records of all your revenue and expenses.

Find record- and receipt-keeping systems that work for you. You may also want to set calendar reminders so you never miss a quarterly tax payment deadline.

Work with a Tax Professional

Freelancer income taxes can be challenging and confusing. If you’re overwhelmed and worried about making a mistake, it may be worth the money to hire an accountant or tax preparer.

Plus, the tax-filing fee may count as a deductible business expense for next year.

Understand Tax Refunds for Freelancers

Know that it is unlikely that you’ll get a tax refund as a freelancer. What often triggers a tax refund is that a full-time employee had too much money withheld for taxes from each paycheck and their overpayment comes back to them. (They can adjust their W-4 employee withholding tax form to avoid this situation in the future.)

But as a freelancer, it is unlikely you are overpaying your taxes, especially if you are tracking your income and paying the appropriate amount of quarterly taxes.

Recommended: Maximizing Your Time and Money

The Takeaway

Taxes can get more complicated if you’re a freelancer. You likely will pay more in taxes (thanks to the self-employment tax), and you’ll probably need to make quarterly estimated payments. It’s wise to regularly track and review your earnings and expenses so you can stay on top of how you are doing. For many freelancers, working with a tax professional is the best path forward.

Also worth noting: As a freelancer, you need several tools to stay organized and run your business, including a bank account.

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FAQ

Why is freelance tax so high?

Freelance taxes are higher because they include self-employment tax. This additional 15.3% is what employers traditionally pay on behalf of their employees. In the case of freelancers, they’re both the employer and the employee so they have to cover that amount.

Do I need to declare freelance income?

Yes, you must declare all freelance income. Even if you didn’t make enough to trigger a 1099 from a client — or that client forgot to send you a 1099 — you must report any and all income to the IRS.

What happens if you don’t file freelance taxes?

If you don’t make quarterly tax payments as a freelancer, you could be subject to underpayment penalties when you go to file. If you don’t pay at all, you’ll be subject to Failure to File and Failure to Pay penalties. You’ll owe interest on top of the fines — and eventually could face jail time if you don’t pay.

Can freelancers pay taxes annually?

While freelancers must file taxes annually like everybody else, they are usually required to make quarterly estimated taxes since no taxes are being withheld from their payments throughout the year.

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As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOBK0224010

Feb

2024

6 Reasons Your Student Loan Refinance Can Be Denied

By Carolyn Desalu | Debt Payoff, Student Loans, student_loan | No Comments

If you’re struggling with student loan payments or looking for a better deal on your debt, refinancing your student loans could be a smart financial decision. Unfortunately, not everyone who applies for student loan refinancing is successful.

If you’ve had your application for refinance denied, you may feel confused and disappointed. But getting a no isn’t the end of the road.

There are some common reasons why your loan may have been denied. By understanding those factors, you can take steps to correct any gaps or weak spots in your application and possibly improve your chances of refinancing in the future. Considering the advantages of refinancing for many borrowers, the effort might be worth it.

Common Reasons that Refinance Applications Are Rejected

If you’ve had your application for student loan refinance denied, the decision can feel like a mystery. The lender might not necessarily explain the reasons behind its actions, and you may be left feeling puzzled and stuck. As with a car loan rejection or mortgage modification rejection, a common thread is that the institution feels lending you money is too much of a risk. Read on to see if one of the scenarios below applies to you.

💡 Quick Tip: Some student loan refinance lenders offer no fees, saving borrowers money.

1. You Have a Low Credit Score

Lenders want to feel confident that borrowers will pay back the debt. One of the primary ways that they measure how risky you are as a borrower is by looking at your credit score. Many factors affect your credit score, including whether you’ve missed payments on credit cards or other bills, your credit history, and how much debt you’re carrying relative to your credit limits.

You can find out your current credit score through one of the three major credit bureaus: Experian, Equifax, and TransUnion. If your score isn’t up to par, that could be enough to have your loan denied.

2. You’ve Missed Payments in the Past

For some, it’s easy to let a student loan payment slip now and then. Perhaps you ran into financial difficulties and couldn’t afford to pay, or maybe you simply forgot amid the chaos of life.

Even though it’s understandable, lenders don’t look at a history of missed payments lightly. If you’ve failed to pay in the past, they may see this as a sign that you’ll skip payments with them as well. If your loan is delinquent or in default because you’ve missed too many payments, a potential lender may be even more concerned.

3. You Don’t Make Enough Money

When deciding whether they trust you as a borrower, financial institutions want to feel confident that you can afford to repay the loan. If your salary is low compared to the monthly payment you would owe, lenders might make the call that you’re at risk of not being able to pay.

💡 Quick Tip: It might be beneficial to look for a refinancing lender that offers extras. SoFi members, for instance, can qualify for rate discounts and have access to financial advisors, networking events, and more — at no extra cost.

4. Your Debt-to-Income Ratio Is Too High

Even if you earn a decent salary, a private lender could deny your application if they think your debt-to-income ratio is too high. Your debt-to-income ratio is the ratio of your outstanding debt to how much you currently make. Debt here includes anything you owe, including a mortgage, a car loan, student loans, credit card balances, or medical bills.

If those liabilities are high compared to your salary, the lender can decide that giving you a loan is too risky because you may not be able to afford it with your existing financial obligations.

5. You Don’t Have a Solid Job History

Lenders aren’t just looking at your salary. Many also want to get a sense of how solid your job is by considering things like how long you’ve been in your current role, past gaps in employment, and how often you change jobs.

If you haven’t held onto a job long or had much work experience, a lender could fear that you are at risk of losing your current gig — and your income along with it.

6. You Have Other Financial Black Marks on Your Record

A lender is looking out for any sign that you may not be a trustworthy borrower. A significant negative financial event in your history such as a lien, judgment, foreclosure, or bankruptcy can be a red flag for the institution. There may have been a good reason for it, but the lender could decide that lending to you is too precarious.

How to Improve Your Chances

1. Try Other Lenders

If you’ve been denied by just one or two lenders, it may be worth shopping around more widely. Although they follow similar principles, lenders each have their own protocols for reviewing applications.

While one might give more weight to income, another may consider education history just as important. If one lender rejected your application to refinance your student loans due to low credit scores, you may find another lender that will approve your application but at a higher interest rate, which may mean paying more in the long run.

You never know whether a lender will see you as a trustworthy borrower until you try. If you’ve been denied by multiple institutions, you may need to take some other action to improve your prospects.

2. Build Your Credit

Because your credit score is so important to lenders, including with student loan refinancing, you can work on building it if it’s on the low side. There are many ways to potentially improve your credit score. If you have missed bills in the past, you can focus on consistently making your minimum payments on every loan, bill, and credit card you have (setting up auto-pay can help you stay on top of this).

3. Raise Your Income

If your income is relatively low, earning more money may help you qualify for refinancing. This is easier said than done, but you may have more options than you think.

Can you ask for a raise or request more hours at your current job? Can you look for a higher paying role with your employer or elsewhere? Does switching fields make sense? Can you take on another job or side hustle? It’s not always possible, but increasing your earnings could make you a more appealing candidate for refinancing.

4. Give it Time

Sometimes, it can be good to wait. If you have a bankruptcy or missed payments in your past, it’ll take time for these to disappear from your credit history. (It takes seven to 10 years for a bankruptcy to be removed from your credit history.) Even if you’re making all your payments now, a lender usually wants to see that this good behavior is consistent.

Waiting until you’ve been in a new job for a couple of years can help convince lenders that your employment is solid. If these are some of the challenges you’re dealing with, time may be the best medicine. And for those struggling to make consistent payments on their student loans, it could be worth looking into income-driven repayment plans.

These are repayment plans for federal student loans that calculate monthly payments based on your discretionary income. While an income-driven repayment plan might mean you’ll pay more interest over the life of the loan, it could also lower your monthly payments, thus making your student loan debt more manageable.

5. Get a Cosigner

If none of the above tactics are working, or if you don’t want to wait to refinance, you can try reapplying with a cosigner. If this person — perhaps a parent or family friend — has solid credit and employment history, that may help you get approved for a loan or qualify for better terms.

That’s because the cosigner, by essentially guaranteeing the loan, makes you much less of a risk for the lender. But keep in mind that the cosigner’s credit score could be affected by missed payments on the loan, and they may have to make payments on the loan if you’re unable to.

Take control of your student loans.
Ditch student loan debt for good.

Refinancing May Still Be Possible

Even if you’ve been denied in the past, that doesn’t mean you’ll never be able to refinance your student loans. Understanding the reasons that refinancing applications frequently get rejected can help you figure out where you have room to improve.

You have lots of options for strengthening your application and reducing your riskiness as a borrower, from earning more to improving your credit score to getting a cosigner. If refinancing is a student loan debt solution you feel strongly about, consider implementing these action items before reapplying.

And remember that while refinancing has lots of benefits, you’ll lose access to federal loan benefits when refinancing with a private lender. So refinancing may lower your interest rate or get you a more favorable loan term, but it will also disqualify you from taking advantage of federal programs like income-driven repayment plans.

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.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

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.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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Feb

2024

Can You Refinance Student Loans Without a Degree?

By Kayla McCormack | Debt Payoff, Student Loans, student_loan | No Comments

If you’ve dropped out of college but are still carrying student loan debt, you have a number of repayment options, depending on your income and credit profile. Some private lenders may allow you to refinance your federal student loan, but others definitely will not.

College dropout rates indicate that up to 32.9% of undergraduates do not complete their degree program, according to EducationData.org. If anyone hopes that not graduating gets them off the hook for paying back a student loan, the answer is a resounding no. The U.S. Department of Education’s Federal Student Aid (FSA) department spells it out on its website for those repaying federal student loans:

“Your federal student loans can’t be canceled or forgiven because you didn’t get the education or job you expected or you didn’t complete your education (unless you couldn’t complete your education because your school closed).”

Why is that? Lenders believe that not having a degree can pose difficulties in getting a high-earning job. College dropouts make an average of 32.6% less income than bachelor’s degree holders. And some data show that college dropouts are four times as likely to default on their loans compared to graduating counterparts.

Take control of your student loans.
Ditch student loan debt for good.

Can You Refinance Student Loans Without a Degree?

Student loan refinancing allows you to pay off federal student loans with a private one carrying different terms. For some borrowers, this new loan might come with a lower interest rate or lower monthly payment than their existing debt, particularly if they have a strong credit and employment history.

However, many private lenders won’t allow you to refinance your student loans if you haven’t graduated. SoFi and some other lenders require that you have at least an associate degree from a Title IV accredited school in order to be eligible for refinancing.

Title IV schools are eligible to process federal student aid under the Higher Education Act. You can verify whether the institution you attended is a Title IV school on the federal student aid website.

Even though some of the most popular lenders require you to have a degree, that doesn’t mean you can’t refinance student loans if you did not graduate. There are some financial institutions that may offer refinancing to borrowers who dropped out.

💡 Quick Tip: Some student loan refinance lenders offer no fees, saving borrowers money.

Federal Student Loan Consolidation Without a Degree

There are other solutions to easing your burden. If you have more than one federal student loan, not having a degree doesn’t stop you from being able to combine them through a Direct Consolidation Loan. Doing so can be beneficial because it allows you to make just one payment every month instead of many, potentially with multiple loan servicers. That can make things simpler for you and make it more likely that you’ll remember to pay your loans on time.

Another reason to consolidate is that you could qualify for a lower monthly payment by extending the term of the loan (though you’d pay more interest over the life of the loan). Also, by consolidating, loans that wouldn’t otherwise qualify might become eligible for income-driven repayment plans or the Public Service Loan Forgiveness program.

Should I Consolidate Student Loans

Consolidation isn’t for everyone, however. As we mentioned above, extending the term of the loan means interest will have more time to stack up. Plus, if you’ve already been making payments under an income-driven repayment plan or toward Public Service Loan Forgiveness, you could lose credit for those payments and have to start over.

You can apply for a Direct Consolidation Loan as soon as you leave school or are enrolled less than half-time. You’d submit an application through StudentLoans.gov. If your loans are still in the grace period, you can ask for the consolidation to be delayed so that it’s closer to the end of that period. If you receive the loan, you’ll need to start repaying it 60 days after it’s paid out.

💡 Quick Tip: Federal parent PLUS loans might be a good candidate for refinancing to a lower rate.

Repayment Options for Federal Student Loans

Federal student loan repayment was put on pause in March 2020 due to Covid-19 hardships. The pause ended in October 2023. If you are focused on dealing with your federal student loans, it’s vital to know that the Department of Education has focused on strengthening its income-driven repayment options.

Any Direct Loan borrowers can apply to the Saving on a Valuable Education (SAVE) Plan, introduced in 2023. (SAVE replaces the REPAYE program.) Your monthly payments will be 10% of discretionary income, possibly lowering to 5% in 2024 when SAVE has been fully implemented. You can learn more about SAVE, and apply through its portal, on the FSA site.

For those really struggling to make any payments, the “On-Ramp Program” is in effect through Sept. 30, 2024. This prevents the worst consequences of missed, late, or partial payments, including negative credit reporting for delinquent payments for 12 months. However, payments are still due, and interest will continue to accrue.

You can also apply for forbearance or deferment, temporarily pausing your payments and providing more predictability when you must resume repaying. Keep in mind that forbearance and deferment have financial pros and cons.

Refinancing Your Student Loans

Now or in the future, you may be able to apply for student loan refinancing. You can check your rates with several lenders (using a soft credit check, if possible) to compare rates and terms and see what you might prequalify for.

If you decide to complete a full application, the lender may ask for information like your Social Security Number, outstanding loans and repayment history, income, and employment history. They typically complete a credit check to find out your FICO® Score and look for any red flags, like a history of missed payments, student loan default, eviction, or bankruptcy.

Those who don’t initially qualify for refinancing, or get a favorable rate, can try reapplying with a cosigner — someone who guarantees to repay the loan if the primary borrower can’t.

If you feel you need a cosigner, one with strong credit history and a solid income and employment history (among other financial factors) could help you qualify. If you do use a cosigner, remember that if you default, any missed payments on your end may damage their credit.

It’s important to bear in mind with refinancing that, if approved, you would lose out on several options. These include:

• Access to temporary loan payment relief through approved periods (deferment or forbearance) when you do not have to make payments because of financial hardship, continuing your education, or military service.

• No interest accumulation on subsidized student loans during periods when payments are deferred.

• Access to repayment plans based on your income that provide loan forgiveness once you have been in repayment for 20 or 25 years.

Taking Control of Your Student Loans

Not completing your college degree or stopping and starting over an extended period is far from uncommon. However, It can be frustrating to carry a student loan balance for a degree you don’t have.

Unfortunately, SoFi does not offer student loan refinancing to borrowers who don’t have at least an associate degree, but some lenders do. Plus there are other options, such as applying for income-driven repayment and exploring other federal programs to help with loans.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Can I get a loan without a degree?

Yes, it’s possible to get student loans without a degree — if you are currently enrolled in school. The federal student loan program offers student loans to qualifying borrowers who are attending eligible institutions. Students may also look into private student loans.

Can you refinance student loans without a job?

Refinancing student loans without a job may be more challenging than if you are able to show a record of stable employment. However, lenders evaluate a variety of factors when making lending decisions including employment history, income, credit score, among other factors. The lender is trying to evaluate whether you are able to repay the loan. If you are able to show other sources of income — outside of a traditional job — it may be possible to refinance your student loans.

Do you need to graduate to refinance student loans?

In many cases, yes, you do need to graduate before you can refinance student loans. Many private lenders won’t allow you to refinance your student loans if you haven’t graduated. Though, there are some lenders that are willing to refinance student loans for borrowers who did not graduate.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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.

SOSL0923005

Feb

2024

What Are the Different Types of Taxes?

By Kelly Boyer Sagert | Growing Wealth, invest, Investing | Comments Off

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.

💡 Quick Tip: Don’t think too hard about your money. Automate your budgeting, saving, and spending with SoFi’s seamless and secure mobile banking app.

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’re typically calculated and imposed.

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 am I 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. 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 withhold a percentage of money from employees’ pay and then forward those funds to the government. The amount being withheld will vary, based on a particular employee’s wages, with federal payroll taxes being used to fund Medicare and Social Security.

There are limits on the portion of income that would be taxed. For example, in 2024, a person’s income that exceeds $168,600 is not subject to a common payroll deduction, Social Security tax.

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. For tax year 2023, the federal tax rate on gains made by short-term investments are taxed as ordinary income. For long-term investment gains, the rates will be between 0% and 20%, based on filing status and taxable income.

Recommended: Capital Gains Tax Guide

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 are the different types of taxes, 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.

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.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

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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SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. 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 (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, 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 Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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.

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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HSA for Retirement: Rules, Benefits, and Getting Started

What Is an HSA?

Rules and Restrictions on HSA Contributions

What Are HSA Withdrawals?

How Do Health Savings Accounts Work?

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Can an HSA Be Used for Retirement?

3 Reasons to Use an HSA for Retirement

1. It Can Lower Your Taxable Income

2. You Can Save Extra Money for Health Care in Retirement

3. You Can Boost Your Retirement Savings

HSA Contribution Limits

How to Invest Your HSA for Retirement

HSA for Retirement vs Other Retirement Accounts

What Happens to an HSA When You Retire?

How Much Should I Have in an HSA at Retirement?

When Can I Use My HSA Funds?

The Takeaway

Preparing to File Taxes as a Freelancer

How Taxes for Freelancers Are Different

What Is Self-Employment Tax?

What Are Quarterly Taxes?

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Paying Taxes as a Freelancer

1. Determine If You Have to Pay Freelancer Income Tax

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Common Tax Deductions for Freelancers

Other Tax Deductions and Tax Credits

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Freelancer Tax-Filing Tips

Plan for Retirement as a Freelancer

Research Deductions

Stay Organized

Work with a Tax Professional

Understand Tax Refunds for Freelancers

The Takeaway

FAQ

Why is freelance tax so high?

Do I need to declare freelance income?

What happens if you don’t file freelance taxes?

Can freelancers pay taxes annually?

6 Reasons Your Student Loan Refinance Can Be Denied

Common Reasons that Refinance Applications Are Rejected

1. You Have a Low Credit Score

2. You’ve Missed Payments in the Past

3. You Don’t Make Enough Money

4. Your Debt-to-Income Ratio Is Too High

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Refinancing May Still Be Possible

Can You Refinance Student Loans Without a Degree?

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Can You Refinance Student Loans Without a Degree?

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Refinancing Your Student Loans

Taking Control of Your Student Loans

FAQ

Can I get a loan without a degree?

Can you refinance student loans without a job?

Do you need to graduate to refinance student loans?

What Are the Different Types of Taxes?

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Different Types of Taxes to Know

Income Tax

Property Tax

Payroll Tax

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Inheritance/Estate Tax

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