Whether you’re a novice investor or you’ve been day trading for years, you’ve probably noticed that when it comes to investing there is always more to learn.
From IRAs to exchange-traded funds to derivatives, becoming a savvy investor means staying on top of the basics — and being open to new concepts.
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Our goal is to clarify what investing means and the multiple ways that people can potentially make money through their investments. There are never any guarantees, but we can help you to choose an asset allocation mix based on your preferences, with a complimentary 30-min session with a SoFi Financial Planner.
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Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
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New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.
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.
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.
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One adulting rite of passage is getting familiar with the Internal Revenue Service (IRS), the government organization that manages the American tax system. When doing so, you learn to file your taxes, figure out what you might owe, or see whether a refund could be heading your way. Perhaps you need to pay estimated taxes quarterly.
The IRS doesn’t just collect money, though. It also helps enforce tax laws and provides resources for taxpayers so they can meet their tax responsibilities.
Read on to learn more detail about this, including:
• What is the IRS? What is the IRS responsible for?
• When do you need to interact with the IRS?
• What are some ways to contact the IRS?
• What are some tax-filing tips?
What Is the Internal Revenue Service (IRS)?
Who is the IRS? As briefly noted earlier, the IRS is the government organization that manages the American tax system and enforces internal revenue laws.
The IRS also provides American taxpayers with the resources and services they need to understand their tax responsibilities. It also works with taxpayers to make sure they are complying with tax laws and meet their tax obligations. It can be hard to understand your taxes, but the IRS does provide many online resources that can help educate consumers.
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What Is the IRS Responsible For?
So, what does the IRS do? These are some responsibilities they help American citizens with:
• Applying for Employee Identification Numbers (EINs)
The IRS dates back to 1862 when, during the Civil War, President Lincoln and Congress worked together to create the position of commissioner of Internal Revenue. This was done to introduce income tax that could help pay for war expenses. That particular income tax was repealed just 10 years later, revived in 1894, and was then ruled unconstitutional just a year later.
Over the years, changes were made to the tax system. In the 1950s, the IRS was reorganized (formerly known as the Bureau of Internal Revenue). Almost five decades later, the Restructuring and Reform Act of 1998 modernized the IRS, and, to a large extent, it became what we know today.
Interacting with the IRS is a regular occurrence for American taxpayers. These are some examples of times when people need to engage with the IRS.
Filing Taxes
One of the main functions of the IRS is providing a system for Americans to file their taxes. This can now be done online and is free to do. (It’s wise to avoid missing the tax-filing deadline so you won’t be liable for any penalties.)
Making Tax Payments
It’s also possible to make a variety of payments through the IRS, depending on the different types of taxes you may owe. This can be done in full, or the taxpayer can make partial payments as a part of an approved payment plan. The IRS can charge interest and penalties until the full balance is paid.
Making Tax Corrections
If someone needs to make corrections on a return they already filed, they can do so with the help of the IRS. They can do this by filing an amended return. They can use Form 1040-X, which is an amended U.S. Individual Income Tax Return.
Tips for Contacting the IRS
If someone needs help with their taxes, they have a few options for how they can contact the IRS for support.
By Phone
Monday through Friday, it’s possible to contact the IRS by phone. (Any residents of Hawaii or Alaska will want to follow Pacific time when planning their calls. Puerto Rico phone lines are open from 8 a.m. to 8 p.m. local time.)
Need help preparing for tax season? The type of tax support someone needs can impact which phone number is best to call:
• Individuals
800-829-1040
7 a.m. to 7 p.m. local time
• Businesses
800-829-4933
7 a.m. to 7 p.m. local time
• Non-profit taxes
877-829-5500
8 a.m. to 5 p.m. local time
• Estate and gift taxes (Form 706/709)
866-699-4083
10 a.m. to 2 p.m. Eastern time
• Excise taxes
866-699-4096
8 a.m. to 6 p.m. Eastern time
• Callers who are hearing impaired
TTY/TDD 800-829-4059
In Person
It’s also possible to receive assistance in person if the taxpayer is able to visit one of the IRS Taxpayer Assistance Center Offices. The IRS has a Taxpayer Assistance Center Office Locator that makes it easy to find the closest office.
Tax-Filing Tips
Need to file taxes? These are some tax-filing tips that can make the process easier:
• Get a head start. Whenever possible, it’s best to start preparing your taxes early. That way, if an issue arises, there is time to resolve it. Filing earlier can give the filer more time to find any missing information they realize they need during the filing process.
Also, the sooner you file, the sooner you’ll get any refund you may be due, so you won’t waste time wondering, “Where is my tax refund?”
• Keep things accurate. While mistakes do happen, whenever possible, it’s best to file an entirely accurate tax return to help avoid the risk of launching an IRS audit trigger. You may want to work with a professional tax preparer or use tax software to help with this.
• Plan ahead for extensions. It’s possible to request a tax-filing extension to send in your materials the following October instead of April. However, it’s still necessary to make a good faith estimate about what is owed and pay it. Otherwise, there is a risk of penalties and interest.
If someone is worried they will need to ask for an extension, it’s best to make that plan sooner rather than later so they can make their estimated payment on time.
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The Takeaway
Taxes are an unavoidable part of life. While few people like paying taxes and most people would rather not interact with the IRS, the IRS does provide a variety of resources. These tools can help make the process of paying taxes and receiving refunds as simple as possible.
Getting ready for tax season is an important way for consumers to stay on top of their financial life. Opening a new bank account is a great way to get ready to receive a tax refund if you’re expecting one.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
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FAQ
How can I pay my taxes to the IRS?
The IRS gives taxpayers a variety of options for how they can pay their taxes. You can do this via a transfer from your bank account, by using a debit card or credit card, or through a digital wallet such as PayPal. You can also pay by check, money order, or cashier’s check through the mail. You may pay by cash at certain retail partners and IRS locations.
Am I able to contact the IRS?
It is possible to contact the IRS by phone (there are different support lines designed for different types of tax issues). If someone lives near one of the IRS Taxpayer Assistance Center Offices, they also have the option to receive support in person.
What are some myths about the IRS?
Most myths surrounding the IRS are about how to learn what the date of a refund will be. For example, some people believe they can call the IRS to get their refund date or can order a tax transcript to achieve this, but neither is true. Other myths include that paying taxes is voluntary and that pets qualify as dependents; those are not true either.
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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).
Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.
Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.
As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.
Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
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.
A W-2 can be a vital component to your tax return every April. But what exactly is a W-2? It’s a form filed by an employer that shows compensation paid and amounts withheld from an employee’s paycheck. Compensation includes wages, tips, and other forms of money paid. Withholding can include taxes and other amounts deducted from an employee’s pay. If you have more than one employer, you may receive multiple W-2 forms. These forms are essential documents in filing your taxes for the previous year.
Knowing how to read your W-2 can be helpful in understanding your overall tax liability. Here, you’ll learn more about these documents, including:
• What are the parts of a W-2?
• Who receives a W-2?
• When should your W-2 arrive?
• What’s the connection between a W-2 and a W-4?
Parts of a W-2
All W-2 forms require the same information, regardless of the employer and employee. This information includes key employer information, such as business address and employer identification number (EIN). It also includes the employee’s information, such as social security number and mailing address. It’s a good idea to assess the form for any errors; if you see an error, contact your employer for a corrected form.
The W-2 has boxes that display various information. On the left side of the form, you’ll see the following:
• Box A displays the employee’s Social Security number.
• Box B shows the employer’s identification number, or EIN.
• Box C contains the employer’s name, address and zip code.
• Box D is a control number (something some employers use).
• Box E is the employee’s name.
• Box F is the employee’s address.
To the right and below the information above, you’ll see these areas:
• Box 1 reflects earnings: wages, tips and other compensation.
• Box 2 is federal income tax withheld.
• Box 3 shows Social Security tax-eligible wages.
• Box 4 contains Social Security withheld.
• Box 5 is Medicare tax-eligible wages and tips.
• Box 6 shows Medicare tax withheld.
• Box 7 is Social Security tips (meaning discretionary earnings, such as tips, that are subject to Social Security taxation).
• Box 8 is allocated tips (tips your employer assigned to you beyond those you have reported).
• Box 9 is blank, a remnant of its previous use for any advance of the Earned Income Credit, which ended in 2010.
• Box 10 reflects dependent care benefits.
• Box 11 contains nonqualified plans, meaning money put in a tax-deferred retirement plan sponsored by your employer, which can reduce your taxable income.
• Boxes 12 may be blank or may be filled in with codes A through HH, which identify miscellaneous forms of income that need to be reported to the IRS.
• Box 13 shows statutory employee, retirement plans, and third-party sick pay. These will be checked off if you are a statutory employee, meaning an individual contractor who is treated like an employee; if you participate in a qualifying retirement plan; and/or if payments were made by a third party (such as an insurance plan) for disability pay or the like.
• Box 14 reflects other deductions.
• Box 15 shows the state and the employer’s state ID.
• Box 16 contains state wages.
• Box 17 shows state income tax, if withheld.
• Box 18 reflects local tax-eligible wages, tips, etc.
• Box 19 shows any local taxes withheld.
• Box 20 contains the name of the locality.
Employees receive multiple copies of the same W-2 from each employer, to be filed with a federal tax return, a state tax return, and to be kept for the employee’s records. The IRS recommends keeping copies of W-2s for anywhere from three to seven years, depending on your situation.
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Who Receives a W-2?
Now that you know what a W-2 tax form is, you may wonder, who gets one? If you are an employee of a business, you should receive a W-2. If, however, you are a freelancer (aka an independent contractor), you should receive a Form 1099, showing freelance income subject to self-employment taxation, and not a W-2.
The IRS requires employers to send out W-2s by January 31st for the prior tax year. This allows employees to prepare for tax season and get their returns in by mid-April. It might take a few days for the mail service to deliver it to you.
The Connection Between a W-2 and a W-4
The forms W-2 and W-4 may sound alike, but they work quite differently. You’ve just learned the answer to “What is a W-2 tax form?” Now, here’s what a W-4 is.
A new employee will be asked by their employer to fill out a W-4 form, which is used to assess how much tax to withhold from the employee’s wages. Withholding depends on the employee’s circumstances, including whether they have dependents and what their tax-filing status is, among other things. Employees who do not fill out a W-4 will be taxed as if they were single.
Employees won’t be asked to complete a W-4 form again unless they switch employers. But you should take the initiative to update your W-4 if your tax circumstances change, such as you get married, have a child, get divorced, or receive taxable income not subject to withholding, such as earning money from a contract or freelance job.
Each allowance an employee claims on their W-4 will minimize withholding throughout the year. An employee can also request additional amounts be withheld from their paycheck. When taxes are filed, the goal for employees is to avoid a tax bill or a large refund, both of which can indicate that your tax payments during the year were off the mark.
While “tax time” is in April each year, taxes are essentially pay-as-you-go, according to the IRS. That means that, in an ideal world, April shouldn’t bring a large tax bill or a large refund. Worth noting:
• For a single person who has only one employer, filling out a W-4 should be relatively straightforward.
• Those with multiple income streams, including rental income, investment income, or income from side gigs, may need to take some time and thought when completing their W-4 to ensure they’re withholding an appropriate amount, as well as paying quarterly estimated taxes, if necessary.
How do you know that your W-4 is accurate? You can assess that based on the refund or bill you receive at tax time. While a refund can feel like a windfall — and people often earmark it to pay off bills or fund a vacation, home improvement project, or other big-ticket purchase — the money represents an overpayment to the IRS.
While getting a big check can be exciting, it may make more sense to have that money available for budgeting purposes throughout the year. Or you could be putting it into a high-yield savings account. Similarly, a large tax bill can throw your budget off track and may subject you to penalties from the IRS for not having enough taxes withheld from your paycheck or not paying quarterly taxes.
If you pay someone wages of $600 or more in a calendar year, even if that person is a relative, you’re technically an employer in the eyes of the IRS. This means that a person who employs a regular babysitter or housecleaner may need to withhold and pay certain taxes, including Medicare, federal unemployment, and social security.
This is an example of paying someone “on the books” and can be protection against fines and penalties that may come from paying an employee “under the table” or “off the books.” Having a clear understanding of what forms need to be filled out and what steps you need to take as an employer can help avoid a potentially complicated tax situation down the line.
Because things can change from year to year, it can be a good idea for an employee to regularly check their withholding on their W-4 annually. Another wise move is to make sure a new one is filed if there is a life change (as mentioned above), such as having a baby or getting married.
Workers should also keep an eye out for tax-related paperwork, since taxes are due regardless of whether paperwork has made its way to an employee’s mailbox. Missing tax forms can throw a wrench in the most organized person’s plans.
Checking in with an HR department can help make sure nothing falls through the cracks. Having paperwork ready and available can make filing taxes as seamless as possible when the time comes. This may also help you maximize your time if you work with a tax prep professional.
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Tips for Filling Out a W-2
If you’re an employee, you don’t need to do anything to your W-2 beyond checking that the information on it is correct.
If, however, you are an employer, you may fill the form out W-2s yourself, via a tax preparer, or by using payroll software to automate this task. You will be responsible for adding your company’s details properly, as well as information specific to each employee. For instance, when reporting an employee’s compensation, you would include only the amount that is subject to federal taxation. You would not include things like contributions to a pre-tax retirement plan, health-insurance costs, or similar benefits.
The Takeaway
While tax time may be met with eye-rolling and stress, it can also be a moment to set up financial intentions and systems for the year. This can include submitting a new W-4 to your employer, estimating quarterly taxes, and developing a strategy to ensure that your money works for you in the year ahead. Keeping on top of your finances throughout the year can make tax time more manageable, as can visiting the SoFi Tax Center for more tips.
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FAQ
What happens if the W-2 that I received is wrong?
If you believe your W-2 is incorrect, contact your employer to discuss. They may be able to explain why you sense a discrepancy and, if necessary, reissue the document. If you cannot resolve things quickly and satisfactorily with your employer and believe there’s false information circulating, you may want to reach out directly to the IRS, which can be contacted at its toll-free number, 800-829-1040, or at Taxpayer Assistance Centers.
How much money do I need to make in order to get a W-2?
If you are an employee who earned $600 or more in a given year, you should receive a W-2, which is usually sent out by January 31st of the following year.
What is the difference between a 1099 and a W-2?
A W-2 is a form that shares information about an employee’s earnings and withholding. A 1099-NEC is a form that independent contractors may receive. Workers who get 1099 forms are responsible for paying their own employment taxes, unlike W-2 employees.
What should I do if I have not received my W-2 yet?
January 31st is the day by which W-2s must be sent out for the previous tax year. If you haven’t received yours by that date and the form was mailed, you may want to give it another couple of days to allow for it to arrive. Other steps to deal with this situation include checking online to see if you have a downloadable version and contacting your employer to see what the status is. If it’s late February and you still don’t have it, it can be wise to contact the IRS directly for guidance. You might be able to use an IRS Form 4852 as a substitute for a W-2, for example.
SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).
Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.
Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.
As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.
Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
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.
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.
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.
On a salary of $50,000 per year, you can afford a house priced at around $128,000 with a monthly payment of $1,200 — that is, as long as you have relatively little debt already on your plate. However, not everyone earning $50,000 will see this number in response to a loan application. There are many more factors besides income and debt to take into account, such as:
• Your down payment
• The cost of taxes and insurance for the home you want
• The interest rate
• The type of loan you’re applying for
• Your lender’s tolerance for debt levels
Each of these factors affects how much home you can afford on any salary, including one at $50,000.
What Kind of House Can I Afford With $50K a Year?
$50,000 is a solid salary, but there’s no denying today’s real estate market is tough. You’ll need to know the full picture of home affordability to get you into the house you want, starting with your debt-to-income (DTI) ratio.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Questions? Call (888)-541-0398.
Understanding Debt-to-income Ratio
Your DTI ratio may be one of your biggest challenges to home affordability. Each debt that you have a monthly payment for takes away from what you could be paying on a mortgage, lowering the mortgage amount that you can qualify for.
To calculate your DTI ratio, combine your monthly debt payments such as credit card debts, student loan payments, and car payments and then divide the total by your monthly income. This will give you a percentage (or ratio) of how much you’re spending on debt each month. Lenders look for 36% or less for most home mortgage loans.
For example, on a $50,000 annual salary and a $4,166 monthly income, your maximum DTI ratio of 36% would be $1,500. This is the maximum amount of debt lenders want to see on a $50,000 salary.
💡 Quick Tip: Lowering your monthly payments with a mortgage refinance from SoFi can help you find money to pay down other debt, build your rainy-day fund, or put more into your 401(k).
How to Factor in Your Down Payment
A down payment increases how much home you’ll be able to qualify for. The more you’re able to put down, the more home you’ll be able to afford. Borrowers who put down more than 20% also avoid having to buy mortgage insurance. When you don’t have to pay mortgage insurance every month, you can qualify for a higher mortgage — but you do need to consider if putting down 20% is worth it to you. A mortgage calculator can help you see how much your down payment affects the mortgage you can qualify for.
Factors That Affect Home Affordability
In addition to the debt-to-income ratio and down payment, there are a handful of other variables that affect home affordability. These are:
• Interest rates When your interest rate is lower, you’ll either have a lower monthly mortgage payment or qualify for a higher mortgage. With higher interest rates, you’ll have a higher monthly mortgage payment and/or qualify for a lower home purchase amount.
• Credit history and score Your credit score affects what interest rate you’ll be able to get, which is a huge factor in determining your monthly mortgage payment and home affordability.
• Taxes and insurance Higher taxes, insurance, or homeowners association dues can bite into your house budget. Each of these factors has to be accounted for by your lender.
• Loan type Different loan types have varying interest rates, down payments, credit requirements, and mortgage insurance requirements which can affect how much house you can afford.
• Lender You may be able to find a lender that allows for a DTI ratio that is higher than the standard 36%. (Some lenders allow a DTI as high as 50%.)
• Location Where you buy affects how much house you can afford. This is one area that you can’t control, unless you move. If you are considering this option, take a look at the best affordable places to live in the U.S.
How to Afford More House With Down Payment Assistance
If you want to be able to afford a more costly house, you may want to look into a down payment assistance (DPA) program. These programs can help you with funding for a down payment on a mortgage. You can look for DPA programs with your state or local housing authority. Preference may be given to first-time homebuyers or lower-income families, but there are programs available for a wide variety of situations and incomes.
How to Calculate How Much House You Can Afford
If you want to know how much mortgage you’ll likely be able to qualify for, you’ll want to take a look at these guidelines.
The 28/36 Rule: Lenders look for home payments to be at or below 28% of your income. Total debt payments should be less than 36% of your income. These are the front-end and back-end ratios you may hear your mortgage lender talking about.
Front-end ratio (28%): At 28% or your income, a monthly housing payment from a monthly income of $4,166 should be no more than $1,166.
Back-end ratio (36%): To calculate the back-end, or debt-to-income ratio, add your debt together and divide it by your income. This includes the new mortgage payment. With monthly income at $4,166, your debts should be no more than $1,500 ($4,166*.36).
The 35/45 Rule: The 35/45 rule is a higher debt level your lender can elect to follow. It’s riskier for them and may come at a higher interest rate for you. This rule allows you housing payment to be 35% of your monthly income and 45% of your total debt-to-income ratio. With a monthly income of $4,166, the housing allowance (35% of your income) increases to $1,458 and the total monthly debt (45% of your income) increases to $1,875.
Making $50,000 a year gives you around $4,166 to work with each month. Using the 36% debt-to-income ratio, you can have a maximum debt payments of $1,500 ($4,166 * .36). In the examples below, taxes ($2,500), insurance ($1,000), and interest rate (6%) remain the same for a 30-year loan term.
Example #1: High-debt Borrower
Monthly credit card debt: $200
Monthly car payment: $400
Student loan payment: $200
Total debt = $800
Down payment = $20,000
Maximum DTI ratio = $4,166 * .36 = $1,500
Maximum mortgage payment = $700 ($1,500 – $800)
Home budget = $88,107
Example #2: The Super Saver
Monthly credit card debt: $0
Monthly car payment: $200
Student loan payment: $0
Total debt = $200
Down payment: $20,000
Maximum DTI ratio = $4,166 * .36 = $1,500
Maximum mortgage payment = $1,300 ($1,500 – $200)
Your monthly payment directly affects the mortgage you’re able to qualify for. The more monthly debts you have, the lower the mortgage you’ll be able to qualify for. That’s why it’s so important to take care of debts as soon as you can.
That’s also why it’s important to get the best interest rate you can. Shopping around for lenders and improving your credit score can both save you money and improve home affordability. A home loan help center is a good place to start the process of looking for a mortgage.
• FHA loans If your credit isn’t ideal, you may be able to secure a Federal Housing Administration mortgage. Though FHA loans are costlier, you can still be considered with a credit score as low as 500. FHA mortgage insurance, however, makes them more expensive than their alternatives.
• USDA loans If you’re in a rural area that is covered by United States Department of Agriculture loans, you’ll want to consider whether the low interest, no-down-loan will make sense for you.
• Conventional loans Conventional financing offers the most competitive interest rates and terms for mortgage applicants who qualify.
• VA loans If you have the option of financing with a U.S. Department of Veterans Affairs loan, with few exceptions, you’ll generally want to take it. It offers some of the most competitive rates, even for zero-down-payment loans. It also comes with no minimum credit score requirement, though the final say on whether or not you can get a loan with a low credit score is up to the individual lender.
💡 Quick Tip: Don’t have a lot of cash on hand for a down payment? The minimum down payment for an FHA mortgage loan is as low as 3.5%.1
The Takeaway
Your $50,000 salary is the first step in qualifying for the home mortgage loan you need to buy a house. To position yourself for the best possible borrowing scenario, consider paying down debt, working on your credit score, applying for down payment assistance, adding a co-borrower, or some combination of the above. With these moves, home affordability improves a great deal.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
Is $50K a good salary for a single person?
A $50,000 salary is good in terms of covering the cost of living in many parts of the U.S. and with proper budgeting it can even put you on the path to affording to purchase your own home.
What is a comfortable income for a single person?
A comfortable income for a single person could be at or above the median income for a single person, which is $56,929 according to data from the U.S. Census.
What is a liveable wage in 2024?
Your living wage depends on your local region, number of working household members, and children. For a single person living in Arizona, the average living wage is about $37,000. If the same person moved to California, an average of more than $44,000 would be needed, according to the Massachusetts Institute of Technology’s Living Wage Calculator.
What salary is considered rich for a single person?
A salary of $234,342 would put you in the top 5% of wage earners in the United States.
Photo credit: iStock/Tirachard
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 Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
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.
On a salary of $36,000 per year, you can afford a house priced around $100,000-$110,000 with a monthly payment of just over $1,000. This assumes you have no other debts you’re paying off, but also that you haven’t been able to save much for a down payment.
Of course, you’ll want to talk to a lender for your individual situation, which could qualify you for more (or less). If it sounds overwhelming, don’t worry. We’ll walk you through what it takes to qualify for a home, no matter what your income level is.
What Kind of House Can I Afford With $36K a Year?
At a $36,000 annual income, you may need some help affording a home in today’s market. You’ll need to eliminate debt and make sure you have a good credit score, as well as find programs and lenders that can help. In addition to income and debt, your lender will take into account:
• Your down payment savings
• What taxes and insurance will cost
• What interest rate you qualify for
• The type of loan you’re applying for
• Whether or not they can let your debt run up to 50% of your income
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Questions? Call (888)-541-0398.
Understanding Debt-to-income Ratio
Beyond interest rates, debt is your biggest enemy to home affordability. The more debt you have to pay on a monthly basis, the less you’re able to pay toward a mortgage. In other words, your $200 monthly credit card payment could cost you thousands on the purchase price of a home.
To understand the debt-to-income ratio (DTI), add all of your debts together, and then divide that number by your monthly income. Your lender calculates your DTI ratio to determine how much you can afford as a monthly payment on a mortgage. The guideline is 36%, but some lenders can go higher on a home mortgage loan.
💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show the real estate agent proof that you’re preapproved for a mortgage. SoFi’s online application makes the process simple.
How to Factor in Your Down Payment
A down payment increases how much home you’ll be able to qualify for. The more you’re able to put down, the more home you’ll be able to afford.
You’ll also want to consider whether you can put down a deposit of more than 20% so you don’t have to buy mortgage insurance. This may help you qualify for a higher mortgage. Use a mortgage calculator to see how a down payment affects home affordability.
Factors That Affect Home Affordability
Home affordability goes beyond your down payment and DTI ratio. You also want to look at:
• Interest rates When interest rates are high, borrowers qualify for a lower mortgage. When they’re low, it may be possible to qualify for a higher mortgage.
• Credit history and score Your credit score is a reflection of your credit habits, and with a higher credit score, you’ll qualify for the best interest rates, giving you more buying power.
• Taxes and insurance If you live in an area with higher taxes, insurance, or homeowners association dues, these will be taken into account by your lender. You’ll qualify for a lower mortgage amount when these numbers are high.
• Loan type Depending on the type of loan you get, your interest rate, credit score, and down payment amount can affect how much house you can afford.
• Lender Lenders have the final say when it comes to approving you for a mortgage. In special circumstances, you may be able to qualify for more than a 36% DTI ratio. Some lenders approve borrowers with a DTI ratio around 50%.
How to Afford More House With Down Payment Assistance
Down payment assistance programs can help you qualify for a larger mortgage. These types of programs have money to help with down payment or closing costs. They are usually offered at the state or local level with both grant and second mortgage programs. They may limit participation to first-time homebuyers or borrowers with lower incomes, but you should still look into these programs and see if you can qualify.
Examples include CalHFA MyHome Assistance Program and the “Home Sweet Texas” Home Loan Program. You can look for programs in your own state, county, and city.
Knowing how much home you are likely to qualify for doesn’t have to be a mystery. While your lender may have flexibility, they generally follow these guidelines:
The 28/36 Rule: Lenders will look for housing payments (including mortgage, taxes, and insurance) to be more more than 28% of your income and total debt payments (including mortgage, car loan, student loan, etc.) to be less than 36% of your income.
The 35/45 Rule: Some lenders allow for higher debt levels. This rule says the housing payment can be up to 35% of your income and total debt to be 45%.
On a $36,000 annual salary, you’ll have $3,000 each month for expenses. Using the 36% debt-to-income ratio, you can have a maximum debt payments of $1,080 ($3,000 * .36). In the two examples below, taxes ($2,500), insurance ($1,000), and interest (6%) are the same for a 30-year loan term.
Example #1: Debt limits home affordability, even with large down payment
Monthly credit card debt: $100
Monthly car payment: $500
Student loan payment: $100
Total debt = $700
Down payment = $20,000
Maximum DTI ratio = $3,000 * .36 = $1,080
Maximum mortgage payment = $380 ($1,080 – $700)
Home budget on $36,000 salary = $34,733
Example #2: No down payment, but little debt
Monthly credit card debt: $0
Monthly car payment: $0
Student loan payment: $100
Total debt = $100
Down payment: $0
Maximum DTI ratio = $3,000 * .36 = $1,080
Maximum mortgage payment = $980 ($1,080 – $100)
Home budget on $36,000 salary = $96,314
How Your Monthly Payment Affects Your Price Range
The amount you’re able to pay toward a mortgage each month determines how much home you’ll be able to afford. Any monthly payments you have, such as debt, can take away from how much you’re able to pay for a mortgage. Conversely, how much income you earn in a month can improve how much mortgage you can qualify for.
Interest rates also play a huge role in your monthly payment. Higher interest rates mean you’ll qualify for a lower mortgage while lower interest rates improve home affordability. That’s why homeowners get a mortgage refinance when interest rates drop.
The different types of mortgage loans also affect home affordability. Some have a zero down payment option, flexible credit requirements, less expensive mortgage insurance, and varying interest rates. You’ll want to consult with your lender to determine what loan type of right for you.
• FHA loans: Loans backed by the Federal Housing Administration are great for buyers with unique credit situations that can’t get approved for conventional financing. It can be more expensive to go with an FHA loan, but there are low down payment options and flexible credit requirements for those with a score as low as 500.
• USDA loans: United States Department of Agriculture mortgages, available in rural areas, offer great interest rates, zero down payment options, and competitive mortgage insurance rates. Some USDA mortgages are directly serviced by USDA, and have a subsidized interest rate.
• Conventional loans: Many borrowers opt for conventional financing if they qualify. Over the course of a mortgage, this is one of the least expensive types due to competitive interest rates and mortgage insurance premiums that drop off after you pay down the loan past 80%.
• VA loans: A loan from the U.S. Department of Veterans Affairs is hard to beat for service members, veterans, and others who qualify. You may be able to qualify for a home purchase price with no down payment. VA loans may have great interest rates and flexible credit requirements (depending on the lender).
💡 Quick Tip: Active duty service members who have served for at least 90 consecutive days are eligible for a VA loan. But so are many veterans, surviving spouses, and National Guard and Reserves members. It’s worth exploring with an online VA loan application because the low interest rates and other advantages of this loan can’t be beat.†
The Takeaway
Purchasing a home on a $36,000 salary is a feat you’ll need help with in a market where the U.S. median sale price tops $342,000. Whether it’s down payment assistance, paying down debt, nurturing your credit score, or adding income, there are a lot of moves you can make to bolster your home budget. In the end, when you move into a place that’s all yours, the hard work will be worth it.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
Is $36K a good salary for a single person?
A single person can afford to live on $36,000 a year in more affordable places in the U.S., but it could still be difficult to afford to buy a home in today’s real estate market.
What is a comfortable income for a single person?
The median income for a single person is $56,929, according to data from the U.S. Census, but a comfortable income for a single person depends on your lifestyle.
What is a liveable wage in 2024?
What is livable varies greatly by location. For a single person living in San Francisco, a living wage is equivalent to $26.63 per hour. In other cities, it’s considerably less.
What salary is considered rich for a single person?
If you make more than $234,342 per year, you would make more than 95% of earners in the United States. But what feels “rich” is going to depend on your lifestyle and where you live.
Photo credit: iStock/mapodile
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 Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
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.
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.
