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Many people consider relocating when they retire to reduce their cost of living and make their savings last longer. When weighing the pros and cons of moving to another state, it’s important to consider the total tax burden there, including state and local taxes on retirement income, property tax, even sales tax. Some areas with a lower tax burden have a higher overall cost of living, which can cancel out any savings.

Below we look at the best states to retire in for taxes and how to tell if moving will be worth it.

Most Tax-Friendly States for Retirement

A number of states exempt Social Security income from state taxes. A smaller number offer a tax break on other retirement income, such as IRAs and 401(k) plans, private pensions, interest, dividends, and capital gains.

These are the 10 tax-friendly states for retirees, according to Kiplinger:

1.   Mississippi

2.   Tennessee

3.   Wyoming

4.   Nevada

5.   Florida

6.   South Dakota

7.   Iowa

8.   Pennsylvania

9.   Alaska

10.   Texas

But before you complete that change of address card, you’ll want to look at the bigger picture.

Factors to Consider When Choosing the Best State to Retire In

When choosing where to retire, it’s wise to first consider issues like safety, access to healthcare, distance to friends and family, or living near other people of retirement age.

Make a list of features that are important to you in a retirement locale, and consider whether any of them could indirectly impact your cost of living, such as being close to friends and family.

Then look at the total cost of living in an area: housing, food, transportation, cultural activities, and other expenses. These retirement expenses generally have a bigger impact on one’s lifestyle than taxes.

Finally, to determine whether a state is tax-friendly for retirees, look at the following:

Does the State Tax Social Security?

Generally, Social Security income is subject to federal tax. But some states also tax Social Security above a certain income threshold, while other states offer tax exemptions for individuals in lower tax brackets.

For the 2025 tax year, the states that tax some or all Social Security benefits are Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

Does the State Tax Pensions?

Many states tax income from pensions, but 15 states do not. These states are: Alabama, Alaska, Florida, Hawaii, Illinois, Iowa, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming.

And these 13 states do not tax income from 401(k) plans: Alaska, Florida, Illinois, Iowa, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Alaska, Florida, Nevada, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax.

Other Taxes That Affect Retirees

When choosing the best state for you to retire in, it’s a good idea to look into sales tax and property taxes too. States that don’t charge sales tax are Alaska, Delaware, Montana, New Hampshire, and Oregon. On the other hand, New Hampshire has very high property taxes, reducing the benefit of no sales tax.

Recommended: When to Start Saving for Retirement

States to Avoid When Retiring

Choosing the best state to retire in sometimes means making compromises. If safety and healthcare access are top priorities, for instance, you may not get your ideal weather. But for many retirees, a high cost of living is a deal-breaker.

Here are the 10 states with the highest annual cost of living, according to a 2025 analysis conducted by GOBankingRates:

1.   Hawaii: $144,436

2.   Massachusetts: $112,752

3.   California: $111,901

4.   Alaska: $95,673

5.   New York: $95,286

6.   Maryland: $89,104

7.   New Jersey: $88,563

8.   Vermont: $88,408

9.   Washington: $88,254

10.   New Hampshire: $87,017

Recommended: Avoid These 12 Retirement Mistakes

The Best States to Retire in 2026

As noted above, the best state to retire in will depend on an individual or couple’s budget, lifestyle, and values. But recent trends may help point you in the right direction.

These are the top 10 states that retirees are moving to, according to United Van Lines’ 2024 National Movers Study:

1.   West Virginia

2.   Delaware

3.   South Carolina

4.   Washington, D.C.

5.   North Carolina

6.   Alabama

7.   Rhode Island

8.   Oregon

9.   Arkansas

10.   Arizona

If cost of living is your sole concern, the following are the 10 least expensive states, according to Bankrate:

1.   West Virginia

2.   Pennsylvania

3.   Delaware

4.   Wyoming

5.   Ohio

6.   Wisconsin

7.   Nevada

8.   Indiana

9.   Idaho

10.   Georgia

States with the Lowest Tax Burden

An area’s total tax burden is the sum of all property taxes, sales taxes, excise taxes (which affect the price of goods), and individual income taxes. Below are the states with the lowest total tax burden for retirees. (On a budget? Tools like an online budget planner can help you monitor spending and make progress toward your financial goals.)

States With the Most Millionaires

One way to measure the overall desirability of an area is the number of millionaires who live there. After all, millionaires can afford to live in states that have high-quality healthcare, nice weather, and diverse cultural offerings. These are not the cheapest states in terms of cost of living or taxes, but their popularity may help non-millionaires reevaluate their must-haves vs. nice-to-haves.

Does It Make Financial Sense to Relocate in Retirement?

For workers who already live in a state with moderate taxes, are near family, and have a lifestyle they enjoy and can afford, there may not be any compelling reason to move. But for those looking to make a change or lower their retirement expenses, it may make financial sense to relocate.

Just remember that housing, food, transportation, and other expenses usually have a bigger impact on one’s retirement lifestyle than taxes.

Pros and Cons of Relocating for Tax Benefits

Lower taxes alone may not be enough to motivate someone to pick up and move house. Other factors should also support the decision.

Pros of Relocating for Tax Benefits

•  Potentially lower cost of living

•  Discovering a community of like-minded retirees

•  Possibly ticking off other boxes on your list

Cons of Relocating for Tax Benefits

•  Other living costs may cancel out the tax benefits

•  Moving costs are high, and the stress can be tough

•  Need to find another home

The Takeaway

The best state to retire in for tax purposes depends on an individual’s budget, lifestyle, and values. Some states with lower taxes for retirees can have higher housing and transportation costs, canceling out any tax benefit. A financial advisor can help you decide if saving on taxes is worth the expense and trouble of relocating.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

What are the 3 states that don’t tax retirement income?

Nine states don’t tax retirement plan income because they have no state income taxes at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Those states, along with Illinois, Iowa, Mississippi, and Pennsylvania, don’t tax distributions from 401(k) plans, IRAs, or pensions. Alabama and Hawaii don’t tax pensions, but do tax distributions from 401(k) plans and IRAs.

Which state is the best state to live in for tax purposes?

Alaska has the lowest overall tax rates.

Which states do not tax your 401k when you retire?

Alaska, Florida, Illinois, Iowa, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax 401(k) plans when you retire.

Photo credit: iStock/Jeremy Poland

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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.

SORL-Q425-061

Dividends are payments that investors can receive from stocks, exchange-traded funds (ETFs), and mutual funds. These earnings count as income and may be taxable, depending on your income and filing status.

We’ll investigate dividend tax rates and the difference between ordinary and qualified dividends.

Defining Ordinary and Qualified Dividends

The IRS divides stock dividends into two categories: ordinary and qualified. The federal tax rate is different for each category. A qualified dividend is one that qualifies for a lower tax rate based on the concept of capital gains. An ordinary dividend, meanwhile, is one that doesn’t qualify for a lower rate.

When a company declares a dividend payment, your dividend is ordinary if you’ve held their stock for less than 61 days over a 121-day period. If, however, you make the stock purchase on or before the date that it’s declared, and then hold it for at least 61 days, it is considered qualified.

The timing also matters. Let’s say that you own stock in Company A, and they announce that a dividend will be paid on December 1. The day before, November 30, is called the ex-dividend date, or ex-date. If you bought your shares of stock 60 days or fewer before November 30, then your dividend is ordinary. But if you bought the stock more than 60 days before November 30, your dividend is qualified.

“Not all investment types generate the same type of taxation,” says Brian Walsh, CFP® and Head of Advice & Planning at SoFi. “When deploying a tax-efficient investment strategy, it’s crucial to know how an investment is going to be taxed.”

Qualified Dividend Documentation

When it’s tax time, you’ll receive a 1099-DIV. This is the form that financial institutions use to report dividends to the IRS and relevant taxpayers. Box 1a shows the total ordinary dividends you received during this tax period. Box 1b shows your qualified dividends. The form will also show any federal or state income tax that was withheld. You can use this information plus the federal dividend tax rate to determine what you owe.

Financial institutions must issue a 1099-DIV to shareholders who receive more than $10 in dividends and other distributions for the year.

Tax Information for Ordinary and Qualified Dividends

The ordinary dividend tax rate is the same as an individual’s income tax bracket for the year.

The qualified dividend tax rate for 2025 is calculated using capital gains tax rates. This may be 0% depending on your taxable income and filing status. Here are the latest figures from the IRS for the 2025 tax year:

•   Less than $48,350 for single or married filing separately.

•   Less than $64,750 for head of household.

•   Less than $96,701 for married filing jointly or qualifying widow(er).

The qualified dividend tax rate rises to 15% for the next tax brackets:

•   $48,351 through $533,400 for single filers.

•   $48,351 through $300,000 for married filing separately.

•   $64,751 through $566,700 for head of household.

•   $96,701 through $600,050 for married filing jointly or qualifying widow(er).

Once your household income exceeds the 15% bracket, you’ll pay a 20% tax rate on any qualified dividends. There may also be a 3.8% net investment income tax. Consult your accountant or financial advisor regarding your situation.

Recommended: What Are the Tax Benefits of Marriage?

Dividend Tax Rate 2024

The thresholds can change by year. For example, the dividend tax rate for 2024 was as follows

•   0% dividend tax rate:

◦   Single filers, up to $47,025

◦   Married filing jointly, up to $94,050

•   15% dividend tax rate:

◦   Single filers, $47,026 through $518,900

◦   Married filing jointly, $94,051 through $583,750

•   20% dividend tax rate:

◦   Single filers, $518,900+

◦   Married filing jointly, $583,750+

Dividend Tax Rate 2026

Looking ahead, we’ve got some insights into the 2026 tax year, which you’ll file in 2027. A married couple filing jointly won’t pay taxes on qualified dividends until their income is above $98,900. Above that amount, the tax rate will be 15%. The tax raise will go up to 20% when a couple earns more than $613,700.

Individual filers won’t pay 15% until their income is greater than $49,450. They’ll pay 20% when income exceeds $545,500.

Whether you’re paying a tax bill or getting a refund this year, it helps to have your financial house in order. With a money tracker app, you can set budgets, manage bill paying, and monitor your credit.

Recommended: Guide to Filing Your Taxes for the First Time

Why Are the Two Types of Dividends Taxed Differently?

Qualified dividends are more favorably taxed as an incentive to investors to hold onto stocks for a longer period of time. This is based on the concept of capital gains.

Additional Qualified Dividend Requirements

Besides the holding period described above, the dividend must have been paid by a corporation in the U.S. or a qualifying foreign one. Plus, the payment can’t be a dividend in name only. For example, payments given by tax-exempt agencies don’t qualify.

If a payment doesn’t satisfy all three requirements, then it can’t be a qualified dividend. It may be an ordinary dividend or another type of income.

The Takeaway

There are two broad types of dividends: ordinary and qualified. Qualified dividends are taxed at a lower rate than ordinary dividends. For a dividend to be qualified, an investor must hold the stock for at least 61 days during a particular time frame. A 1099-DIV will break out dividends into qualified and ordinary for the taxpayer’s information. There are three tax rates for qualified dividends. The lowest tax brackets pay nothing. The next brackets pay 15%, and the highest brackets pay 20%. Ordinary dividends are taxed as regular income.

To seamlessly track your finances, consider a spending app, which allows you to handle tasks like budgeting, paying bills, and more.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

What is the tax rate on dividends in 2025 and 2026?

The ordinary dividend tax rate is based on your tax bracket. With a qualified dividend tax rate, it depends on your filing status and your income. The lowest tax brackets pay nothing, the middle brackets pay 15%, and the highest brackets pay 20%.

How do I calculate my qualified dividends?

Investors receive form 1099-DIV from their financial institution, which provides the amount of ordinary and qualified dividend income received during the year. The IRS also provides a worksheet.

Why are my qualified dividends being taxed?

Dividends are a type of income, and investors who receive them typically pay taxes on them. It’s true that individuals who make less than $48,350 in 2025 pay no tax on qualified dividends. However, taxpayers in higher brackets must pay 15% or 20%.

Photo credit: iStock/AsiaVision

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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 Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SORL-Q425-065

Self-employment tax consists of Social Security and Medicare tax, which are the same taxes that would be withheld from your pay if you worked for an employer. If you work for yourself, you’ll need to ensure you’re handling your tax filing correctly. That means paying self-employment tax, typically in four estimated quarterly installments along with any federal, state, and local income tax owed.

Here’s what you should know about self-employment tax if you’re contemplating being your own boss or are already up and running as a freelancer.

What Is Self-Employment Tax?

Self-employment tax is the income tax you pay on net earnings, as mandated by the Self-Employment Contributions Act (SECA). The IRS determines who must pay self-employment tax.

SECA taxes help to fund Social Security and Medicare benefit programs for people who are elderly, retired, or disabled, as well as their eligible dependents. That’s the same as Federal Insurance Contributions Act (FICA) taxes, which are part of your income tax withholding if you work for an employer.

Self-employment tax exists to ensure that people who work for themselves pay their share of federal income tax. It’s important to understand how much you’re making and what tax bracket you’re in, and to report your self-employment income accurately, because what you earn influences what you’ll be able to collect from Social Security when you retire.

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How Much Is Self-Employment Tax?

The Internal Revenue Service sets the self-employment tax rate at 15.3%. There are two parts to the tax:

•   12.4% for Social Security, which is also referred to as Old-Age, Survivors, and Disability Insurance (OASDI)

•   2.9% for Medicare

The amount you pay in self-employment tax depends on how much you earn from self-employment for the year and what you deduct. It doesn’t matter what profession you are pursuing, whether you’re an actor or a nature photographer (which can be a good job for introverts).

What is the amount of the self-employment tax (SECA), and how does it compare to FICA taxes? The tax rates are the same. What’s different is how they’re paid.

•   If you’re self-employed, you’re responsible for calculating and paying all SECA taxes.

•   If you work for someone else, your employer determines how much to withhold from your checks each pay period.

Employers cover half of the tax for their employees. So, instead of paying 15.3% yourself, you’d pay 6.2% for OASDI (Social Security) taxes and 1.45% for Medicare tax, while your employer pays the rest. However, you as a self-employed individual may deduct the other half of this payment (the portion an employer would pay) on your tax return when calculating your adjusted gross income.

Recommended: How Much Do You Have to Make to File Taxes?

Who Has to Pay Self-Employment Tax?

The IRS requires you to pay self-employment tax if either of the following is true:

•   Your net earnings from self-employment are $400 or more

•   You had church employee income of $108.28 or more

Those rules apply to sole proprietors, independent contractors, partners, and single-member limited liability corporations (LLCs).

Net earnings are the part of your gross income you keep after subtracting “ordinary and necessary” trade or business expenses. If you’re self-employed as a sole proprietor or independent contractor, you use Schedule C to calculate your net earnings from self-employment. Self-employment tax is reported on Schedule SE of your Form 1040.

There’s no age exemption for self-employment tax. If you owe it, you’ll need to pay it even if you already receive Social Security benefits.

Self-Employment Tax Rate for 2025 and 2026

If you’re preparing for tax season, it helps to know if there are any updates to tax rates. The self-employment tax rate for the 2025 tax year is 15.3%; it’s the same for 2026. So for returns you file in 2026 and 2027, you’ll calculate self-employment tax as 15.3% of net earnings.

What’s different for each tax year is the amount of your net earnings that are subject to Social Security tax. This is called the wage base limit.

•   For 2025, the wage base limit for the Social Security portion of self-employment tax is $176,100.

•   For 2026, the wage base limit increases to $184,500.

How much is self-employment tax, in terms of your total income? According to the IRS, the amount of net earnings subject to self-employment tax is 92.35%. All your net earnings are subject to the Medicare tax.

Certain self-employed individuals are subject to an additional Medicare tax of 0.9%. This tax applies if your income is above a certain threshold for your filing status. Here are the current thresholds for both 2025 and 2026:

Recommended: What Are the Different Types of Taxes?

How to Calculate Self-Employment Tax

A self-employment tax calculator (options are available online) can help you estimate what you’ll owe, and using an online budget planner can help you monitor your money year-round.

That said, you don’t always have to rely on tech. It’s possible to do the calculations yourself. Here’s how to calculate self-employment tax in a few simple steps.

1.    Calculate your net earnings from self-employment, which again is the difference between your gross income and deductible expenses.

2.    Multiply your net earnings by 92.35%.

3.    If the amount is less than $176,100 (in 2025) or $184,500 (in 2026), multiply it by 12.4% to calculate your Social Security tax. Otherwise, multiply $176,100 (in 2025) or $184,500 (in 2026) by 12.4%.

4.    Multiply the amount you got in step two by 2.9% to calculate your Medicare tax.

You should now have two amounts. The final step is to add them together.

Example Self-Employment Tax Calculation

If you’re new to self-employment tax (and possibly paying taxes for the first time as well), it can help to have an example to follow of how to calculate what you owe.

Say you start an e-commerce store. You bring in $110,000 in gross income and have $10,000 in home office expenses, leaving you with $100,000 in net earnings. Now you can do the math.

•   $100,000 x 92.35% = $92,350

•   $92,350 x 12.4% = $11,451.40

•   $100,000 x 2.9% = $2,678.15

•   $11,451.40 + $2,678.15 = $14,129.55 in self-employment tax

You can deduct one-half of what you pay in self-employment tax. Deductions reduce your taxable income for the year, which can help you to owe less or get a bigger refund.

How to Pay Self-Employment Tax

Self-employment tax is typically paid in four installments, called quarterly estimated payments. These payments reflect the amount you estimate you’ll owe in taxes based on your expected net earnings.

Quarterly payments are typically due:

•   April 15 for income earned from January 1 to March 31

•   June 15 for income earned from April 1 to May 31

•   September 15 for income earned from June 1 to August 31

•   January 15 of the following year for income earned from September 1 to December 31

Making quarterly payments doesn’t mean you don’t have to file a federal income tax return. You don’t want to miss your tax filing deadlines for those quarterly payments, but you’ll still need to hit the annual tax filing deadline, which is usually April 15.

If you’ve underpaid your estimated taxes, you may owe when you file. The IRS could also impose an underpayment penalty if you owe more than $1,000. Underpayments and missed payments are two of the biggest tax filing mistakes to avoid when you’re self-employed.

Tax Deductions for Self-Employment

Claiming tax deductions can shrink your taxable income. Some deductions are designed for people who are self-employed or run businesses, while other deductions are available to anyone who qualifies.

Examples of self-employed deductions include:

•   Half of the self-employment tax you paid, as noted above

•   Contributions to a self-employed retirement plan, such as a solo 401(k) or SEP IRA

•   Contributions to a traditional IRA

•   Health Savings Account (HSA) contributions (if you have a high deductible health plan)

•   Health insurance premiums

•   Home office expenses (an online money tracker can help you keep tabs on these)

•   Mileage and travel expenses, if that applies to the type of business you run

You may also be able to claim other deductions as well, based on how you file. For example, a sole proprietor can write off mortgage interest, student loan interest, and charitable contributions alongside business expenses.

Worth noting: If you’re filing taxes on investment income, you can also deduct expenses related to maintaining the property.

“It’s a good idea to check your pay stubs periodically to ensure that the deductions being taken out are accurate and align with your financial goals,” says Brian Walsh, CFP® and Head of Advice & Planning at SoFi. “To make sure the appropriate amount of taxes are being withheld from each paycheck, you may also want to revisit your W-4 annually and make any adjustments as your circumstances change.”

The Takeaway

Self-employment tax refers to the Social Security and Medicare taxes that earners who are not employees must pay. Typically, employers pay half this amount, but the self-employed must pay the full 15.3% amount and can then deduct half when doing their taxes. Understanding how and when self-employment taxes are due can play an important role in tracking and managing your money well.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Why do I have to pay self-employment tax?

You have to pay self-employment tax because that is the law. Paying self-employment tax isn’t that different from the tax withholding your employer would take from your check if you had a regular 9 to 5 job.

What is 30% tax for self-employed?

The 30% rule of thumb for self-employed taxpayers suggests holding back 30% of your gross income to cover your tax obligations. The idea is that by setting aside this much, you should be able to comfortably cover your self-employment tax obligations.

What is the 20% self-employment deduction?

Some self-employed individuals may be able to take advantage of the Qualified Business Income (QBI) deduction. This deduction allows you to write off up to 20% of your QBI, plus 20% of any qualified real estate investment trust (REIT) dividends you receive. This deduction is only available, however, to businesses in certain trades and industries.

How do I get the biggest tax refund when self-employed?

Getting a tax refund means that you’ve paid in more tax than you owe. The simplest way to increase your refund size is to maximize your deductions. Maxing out a tax-advantaged retirement plan, itemizing every eligible business expense, and deducting other expenses, like charitable contributions or mortgage interest, could help you snag a bigger refund.

How much can an LLC write off?

Technically, there’s no limit on the dollar amount an LLC, or limited liability company, can write off. However, each expense you deduct must be legitimate and reflect the amount you actually spent. It’s wise to keep a paper or digital trail to document your deductible business expenses, just in case the IRS comes knocking with an audit.

What happens if my LLC makes no money?

If your only source of income is an LLC and you make no money, then you wouldn’t owe any taxes since there are no net earnings to report. You would, however, still need to file your return and document any net operating losses. A net operating loss happens when your business spends more than it brings in.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

SORL-Q425-064

Applying for no-interest student loans can significantly reduce the cost of earning a degree, making higher education more accessible without the long-term burden of accumulating interest. These unique funding options — typically offered by nonprofit organizations, state programs, and select institutions — allow eligible students to borrow responsibly while keeping repayment affordable and predictable.

While these loans are relatively rare, and amounts tend to lower than other types of student loans, no-interest student loans do exist and may be worth looking into for the potential savings. Read on to learn how interest-free student loans work and where to find them.

What Is a No-Interest Student Loan?

Interest-free student loans are loans that do not accrue interest. Unlike grants and scholarships, the loan amount must be repaid, but because there are no interest charges, the amount repaid by the borrower remains the same as the original amount borrowed. Traditional student loans, whether federal or private, all come with interest rates that are either fixed or variable.

The interest rates on federal student loans are fixed and are set annually by Congress. For the 2025-2026 school year, the interest rate on Direct Subsidized or Unsubsidized Loans for undergraduates is 6.39%, the rate on Direct Unsubsidized Loans for graduate and professional students is 7.94%, and the rate on Direct PLUS Loans for graduate students, professional students, and parents is 8.94%.

While federal student loan rates are the same for every borrower, private student loan rates range based on the lender, the type of interest rate (fixed or variable), and the borrower’s credit score. Interest on private student loans can run anywhere from 3.19% to 17.95%, according to Education Data Initiative.

Whatever the interest rate on a student loan, you will end up paying more than you borrow. No-interest student loans can be an attractive alternative. Here are some places to look for interest-free loans:

•   Schools: Some colleges and universities offer no-interest loans for current students to cover emergency expenses.

•   States: You may be able to find an interest-free student loan through your state’s education agency. For example, Massachusetts offers students who demonstrate financial need and attend a qualifying school in Massachusetts a no-interest loan for up to $4,000 each academic year.

•   Nonprofit organizations: Some foundations and nonprofits offer no-interest student loans. These loans can be set up in different ways. In some cases, you can get a small loan amount; in others, the organization will pay your remaining cost of attendance. Some are awarded based on merit, while others are awarded based on financial need.

Applying for Interest-Free Student Loans

The application process for most interest-free loans resembles the application process for grants or scholarships more closely than a traditional loan application.

It’s a good idea to fill out the Free Application for Federal Student Aid (FAFSA®), even if you want to focus on loans without interest. The FAFSA determines your eligibility for federal aid, including grants, scholarships, and federal student loans. Some interest-free loans use the FAFSA to determine financial need.

And while federal loans do accrue interest, they typically have lower rates than private student loans. Federal student loans also come with benefits, such as income-based repayment and forgiveness programs, that private student loans and no-interest loans may not offer.

Interest-free student loans are often local and state-based, rather than national. They may require proof of residency in a certain state. Some may also have an essay requirement, academic requirements, and might even require an interview.

The process is usually more intense than regular student loans because funds are limited. Some state agencies and philanthropic organizations use the term “scholarship loan” to refer to interest-free loans. Scholarship loans may also be repaid through public service.

Keep in mind though that those organizations are still separate from the government, and do not offer the same repayment plans as the loans offered through the U.S. Department of Education.

Recommended: Student Loan Interest Deduction

Subsidized Loans: No Interest Until After Graduation

Interest-free loans are relatively rare, so it’s possible that students will still need to rely on federal student aid. There are two types of federal Direct Loans available to undergraduate students: subsidized and unsubsidized.

Subsidized loans are available to undergraduates who demonstrate financial need. The U.S. Department of Education pays the interest accruing on the loans while you’re in school, during your six-month grace period, and when your loans are in deferment.

On the other hand, unsubsidized loans are available to undergraduate and graduate students, and they don’t require that students demonstrate need in order to qualify. Interest accrues while you’re in school and during grace periods, deferment, or forbearance — and you’re responsible for paying the interest.

Federal student loans also offer a few different payment plans, including income-driven repayment plans, so that borrowers can find the option that works best for them. There are also borrower protections like deferment or forbearance that can act as a safety net for those who find themselves facing financial difficulties down the road.

The Takeaway

No-interest student loans, sometimes called scholarship loans or interest-free loans, are loans that do not accrue interest at all. While not common, there are some nonprofits, state agencies, schools, corporations, and religious organizations that offer interest-free loans to students.

In case you’re not able to find or qualify for a no-interest loan, it’s a good idea to fill out the FAFSA to access other forms of financial aid, including grants, scholarships, and federal student loans.

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

FAQ

What is a zero-interest student loan?

A zero-interest student loan is a loan where you borrow money for your education but aren’t charged any interest — so you only repay the principal amount you borrowed.

Who can qualify for zero-interest student loans?

Typically, these loans go to low-income students, residents of certain states, or borrowers who meet specific financial-need criteria or eligibility requirements set by nonprofit or state programs.

Where can students find zero-interest loan programs?

Many are offered through state-funded programs — for example, state-administered no-interest loan initiatives — or through nonprofit organizations dedicated to making higher education more affordable.

About the author

Julia Califano

Julia Califano is an award-winning journalist who covers banking, small business, personal loans, student loans, and other money issues for SoFi. She has over 20 years of experience writing about personal finance and lifestyle topics. Read full bio.

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

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

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SOISL-Q425-052

The amount you’ll end up paying in income taxes doesn’t have to remain a mystery until you complete your federal return.

With a fundamental understanding of how taxes work and some basic information about your household, you may be able to estimate what your tax liability or refund will be. And with that knowledge, you can better plan your finances for 2026 and 2027.

Read on for a look at what your 2026 taxes might look like, and how your income, filing status, and other factors can impact your bottom line.

What Is an Income Tax Calculator?

A federal tax calculator for 2026 can help you estimate the federal tax you may owe on the income you earn this year. It isn’t meant to replace the tax service or software you usually use to complete your return. But it could help you plan ahead and make informed choices as you prepare for a potential tax bill, or refund, when you file in 2027.

Historical Tax Rates, Compared

Most people think taxes are too high now, but they could be — and have been — much higher. In 2026, the top tax rate is 37% for individuals whose taxable income is over $640,600 ($768,700 for married couples filing jointly). But in 1944, the highest rate — for anyone who made over $200,000 — was 94%. It wasn’t until 1987 that the top rate dropped below 40%.

The current rates, dictated by the Tax Cuts and Jobs Act of 2017, were made permanent in 2025. The tax code, officially called the Internal Revenue Code, is interpreted and implemented by the U.S. Treasury Department and the Internal Revenue Service (IRS), but tax laws are written by Congress.

How Is the Tax Rate Decided?

There are seven federal income tax rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The more taxable income you have, the more you can expect to pay.

That’s because in the U.S., income tax rates are graduated, which means each of these progressively higher tax rates is assigned to a specific income range, rather than a household’s entire taxable income. Each time your taxable income reaches a new level, you’ll pay a higher rate, but only on the portion that’s in that range.

The ranges, or brackets, differ depending on a taxpayer’s filing status (single, married filing jointly, married filing separately, or head of household), as seen in the table below.

Income Tax Rates and Brackets for 2026 Tax Year

If you’re a single filer with $60,000 in taxable income in 2026, for example, you won’t pay your highest tax rate (22%) on that entire amount. You’ll pay 10% on up to $12,400 of your taxable income; 12% on the amount between $12,401 to $50,400 ($38,000); and 22% on the amount between $50,401 and your taxable income of $60,000 ($9,600).

Recommended: How Much Do You Have to Make to File Taxes?

How to Calculate Federal Taxes in 2026-2027

Determining your income tax each year is, of course, much more complicated than simply applying the various tax rates to the money you’ve earned.

Depending on the complexity of your return, it may take several calculations to come up with the final amount you owe — or what you’ve overpaid and can expect to be refunded. Whether you’re filing taxes for the first time or you’ve been paying income taxes for years, here’s a quick summary of the basic steps that may go into figuring out your federal taxes in 2026-27:

1. Calculate Your Gross Income

This is the total of all the money you made for the year. Think income from your job, including tips; business income; dividend and interest income; etc.

2. Determine Your Adjusted Gross Income (AGI)

Once you know your gross income, you can subtract certain adjustments, such as alimony payments, student loan interest, health insurance premiums (if you’re self-employed), some retirement contributions, and more to determine your AGI.

3. Subtract Applicable Deductions

A tax deduction is an amount you can subtract from your AGI to further reduce your income and lower your tax. You can either choose to list, or itemize, all the tax deductions that apply to you, or you can take the standard deduction. Most taxpayers go with the standard deduction, which for tax year 2026 is:

•   $16,100 for single filers and married individuals filing separately;

•   $24,150 for heads of households; and

•   $32,200 for married couples who file jointly.

However, you may want to run the numbers to see if it makes sense to go with itemized deductions. Some common deductions that must be itemized but could help further reduce your tax burden include mortgage interest, charitable contributions, and medical and dental expenses. But there are many more options to choose from.

4. Apply the Appropriate Tax Rates from the Table

Once you’ve calculated your taxable income, you can apply the 2026 tax rates. Remember, your entire taxable income won’t be taxed at the same rate; the tax rate goes up at various levels, or brackets.

5. Use Any Applicable Tax Credits

Unlike tax deductions, which reduce how much of your income is subject to taxes, tax credits directly reduce dollar-for-dollar the amount of tax you owe. When you’re preparing for tax season, your tax professional or tax software can help you find your applicable tax credits.

Some common credits include the Child Tax Credit, education credits, the Saver’s Credit for retirement savings contributions, and the premium tax credit that helps eligible individuals and families cover the premiums for their health insurance purchased through the federal marketplace.

6. Don’t Forget What You’ve Already Paid

Keep in mind that you’ve likely had money withheld from your paychecks throughout the year to put toward your federal income tax. Or, if you’re self-employed, you may have been making quarterly estimated tax payments. Once you know what you owe (after applying tax credits), you can subtract what you’ve already paid to get a final tax amount. If the number is positive, you can expect to owe the IRS. If it’s negative, and your calculations are correct, you can expect to get a refund.

How Much Does the Average American Pay in Taxes?

A Tax Foundation analysis of the most recent available data from the IRS (2022) found that the average tax rate for all U.S. taxpayers was 14.5%, and the average amount of income taxes paid was $13,890. The highest-earning Americans paid an effective average tax rate of 26%, while the bottom 50% paid 3.74% of their income to the IRS.

Of course, there are other types of taxes you may also have to pay, including sales tax, property tax, state and local taxes, estate tax, and more. And this means taxes can eat up a hefty portion of your hard-earned money.

Need help managing your finances? A money tracker can help you keep tabs on where your money is coming and going.

Example Tax Scenarios

Your federal income tax bill each year will depend on several factors, including your gross income, your filing status, the deductions and credits you can use to lower the amount you owe, and what you’ve already paid during the year. Here are two basic examples of how taxes might be calculated in 2026 for a single filer with a salary of $80,000 and a married couple with a gross household income of $120,000.

Joe, the Single Filer

Joe has a salary of $80,000 in 2026, so his gross income is $80,000.

He decides to go with the standard deduction in 2026, which is $16,100 for a single filer. This brings his taxable income to $63,900.

Joe then uses the applicable tax brackets.

•   The first layer of Joe’s taxable income, up to $12,400, is taxed at 10%, which comes to $1,240.

•   The next layer of Joe’s taxable income, from $12,401 to $50,400, is taxed at 12%, which comes to $4,560.

•   The next layer of Joe’s taxable income, from $50,401 to $63,900 is taxed at 22%, which comes to $2,970.

Joe would have a total federal income tax of $8,770.

Joe finds a couple of credits he can apply that take another $1,000 off of his tax bill. And he figures out that he will have paid $6,000 in federal income tax withholding for the year.

Joe estimates that he’ll owe $1,770 when he files his taxes 2027, and he’s building that into his budget so that he’s prepared when it’s time to pay. (Tip: An online budget planner can take the guesswork out of budgeting.)

Mary and Sam, Married Filing Jointly

Mary and Sam’s combined salaries in 2026 equal $120,000, so their gross income is $120,000.

They don’t have any kids yet, and they haven’t yet purchased a house. So, they decide to use the standard deduction in 2026, which is $32,200. This brings their taxable income to $87,800.

According to the applicable tax brackets:

•   The first layer of their taxable income, up to $24,800, is taxed at 10%, which comes to $2,480.

•   The next layer of their taxable income, from $24,801 to $87,800, is taxed at 12%, which comes to $7,560.

Mary and Sam would have a total federal income tax of $10,040.

Mary and Sam think they’re eligible for $2,000 in tax credits that they can take off their tax bill. And between them they will have paid $10,000 in federal withholding in 2026.

Mary and Sam estimate that they’ll get a refund of $1,960 when they file their 2026 tax return, and they plan to put that refund toward a down payment on a house in 2027.

Recommended: What Tax Bracket Am I In?

How Federal Taxes Impact You

The U.S. tax system is the federal government’s single largest source of revenue, and compliance with federal tax laws is mandatory. The money taxes bring in is meant to finance various public services, including veterans’ benefits, Social Security, health programs, national defense, education, transportation, and more.

That said, there’s a popular quote from an old Morgan Stanley ad that says: “You must pay taxes. But there’s no law that says you gotta leave a tip.”

For high earners, especially, taxes may be one of the most significant expenses they encounter each year and over their lifetime. But all taxpayers can benefit from understanding how taxes work and from the type of proactive planning that can help them legally hold on to more of their money. Staying on top of any changes can also help you avoid common tax filing mistakes, as many deductions, credits, and income thresholds are adjusted annually for inflation.

The Takeaway

If you have an idea of how much you’ll bring in from various income streams this year, and you’re aware of some of the basic deductions and credits that might reduce the amount you’ll owe, you can use the 2026 brackets to calculate a pretty good tax estimate.

Whether you expect to pay when you file your return or you think you’ll get a refund, calculating your tax bill in advance can help you budget appropriately. And you may even find some additional savings in 2026 and beyond.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

What will the tax brackets be for 2026?

The IRS has already published the 2026 tax rate table for single filers, married couples filing jointly, married couples filing separately, and heads of household. Each bracket has been adjusted slightly to reflect inflation.

How can you calculate estimated tax payments for 2026?

To calculate your estimated tax, you must figure your expected adjusted gross income, taxable income, deductions, and credits for the year.

Will tax returns be bigger in 2026?

Some taxpayers may qualify for a larger refund on their 2026 return (due in April 2027), thanks to inflation-related adjustments to the tax brackets and standard deduction amounts. Changes to the tax laws could also impact 2027 returns (due in April 2028), but it’s harder to predict what tax bills will look like at that time.

How much is the standard deduction for 2026?

The standard deduction amount depends on your filing status. In 2026, the standard deduction will be $16,100 for single filers and married individuals filing separately; $24,150 for heads of households; and $32,200 for married couples who file jointly.

What is the tax offset for 2026?

A taxpayer’s offset amount can vary depending on the type of debt that is owed.

What is the filing deadline for 2026 federal tax returns?

Federal income tax returns for 2026 are due on Thursday, April 15, 2027.

Photo credit: iStock/Anastasiia Makarevich

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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