SoFi

The tax benefits of marriage may not be a top consideration when someone is deciding whether to get hitched or stay single. Still, married couples can sometimes qualify for extra savings when it comes to their income tax rate and certain credits, exemptions, exclusions, and deductions.

It isn’t all roses and rainbows, however. Couples may also lose some tax breaks when they change their filing status. But with careful planning, spouses may find there are tax benefits to being married vs. staying single.

Here’s a look at some of the tax bonuses (and penalties) couples can expect when they wed.

Tax Benefits of Marriage, Explained

Spouses have two basic options when filing their income tax returns: They can combine all their information on one return with the status of “married filing jointly,” or they can file two returns as “married filing separately.” (Even couples who were married at the very end of the tax year can no longer file as single.)

The decision to file separately can make more sense sometimes, depending on each spouse’s income and other factors. But the IRS says that when it comes to money and marriage, the joint filing status usually has more benefits for couples.

Advantages of filing jointly can include:

Your Tax Bracket as a Couple Could Be Lower

In the past, combining incomes on a joint tax return often bumped one or both spouses into a higher tax bracket with a higher tax rate than when they were single.

Changes to the tax code, however, have lessened the impact of this so-called “marriage penalty” on some couples. When the Tax Cuts and Jobs Act (TCJA) took effect in 2018, the income levels for joint filers in all but the highest tax brackets were doubled, reducing the chances that married couples would be penalized.

Some high-income couples still may land in a higher bracket after marriage. But with the TCJA’s equalized brackets, more spouses can expect to find themselves in the same or even a lower tax bracket than they had when they were single.

Recommended: What Credit Score is Needed to Buy a Car?

Federal Estate and Gift Tax Limits Are Higher

Although people generally are referring to higher or lower tax brackets when discussing the pros and cons of filing jointly, marriage also can affect couples who plan to gift assets to their heirs.

Couples who wish to transfer wealth to loved ones during their lifetime or upon their death may be able to give twice as much as single filers without being taxed. Here’s what that looks like for 2024:

•   The IRS set the annual gift tax exclusion for individuals at $18,000 per recipient (children, grandchildren, etc.) for 2024. That means this year, married couples can give $36,000 per recipient tax-free without using a portion of their lifetime gift tax exemption.

•   The lifetime estate and gift tax exemption for individuals was set at $13.61 million for 2024. So while a single person can protect $13.61 million for 2024 without having to pay federal estate or gift tax, a married couple can shield a total of $27.22 million.

Other Gift and Estate Tax Advantages

Besides the tax advantages mentioned above, marriage also can allow spouses who are both U.S. citizens to transfer or leave unlimited amounts of money to each other without paying taxes. Any assets exceeding the couple’s estate tax exemption won’t be taxed until the surviving spouse dies.

Taxes on Social Security Benefits

Many people aren’t aware that a portion of their Social Security benefits can be taxed if their income is above a certain threshold. This is true whether you’re single or married, but the IRS thresholds are a bit higher (although not doubled) for married couples.

Here’s how it breaks down based on what the IRS refers to as “combined income.” (Your adjustable gross income + nontaxable interest + ½ of your Social Security benefits = your combined income.):

•   If you file as single and your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your Social Security benefits.

•   If you’re married filing jointly and your combined income is between $32,000 and $44,000, up to 50% of your Social Security benefits may be taxable.

•   If you file as single and your combined income is more than $34,000, up to 85% percent of your benefits may be taxable.

•   If you’re married filing jointly and your combined income is more than $44,000, you may have to pay taxes on up to 85% of your Social Security benefits.

•   You don’t have to pay any taxes on your benefits if you fall below these thresholds.

If you’re married or expect to marry someday, you may want to keep taxes on Social Security in mind as you and your spouse plan your retirement together.

Earned Income Credit and Other Credits

When you’re married, you must file jointly to qualify for the Earned Income Credit (EIC). You generally can’t file separately and claim the credit. And that can be good news and bad news for couples.

The EIC is meant to help low- to moderate-income workers and families save on their income taxes. To be eligible for the credit, you must have earned income. But there are limits on how much you can earn and still qualify based on family size.

Here are a couple of examples of how marriage can result in a penalty or bonus when it comes to the EIC.

•   Penalty: The income thresholds are higher for joint filers than they are for single filers, but they aren’t doubled. If both spouses are working and both earn a moderate income, together they might exceed the limit for their family size before a single filer earning a moderate income would.

•   Bonus: On the other hand, if one spouse works and the other doesn’t, as a couple they might qualify for the EIC based on the working spouse’s earned income. A single person who doesn’t have any income can’t take the credit.

Other credits and deductions that can be affected by a change in your filing status include the child and dependent care credit, the student loan payment interest deduction, the Saver’s Credit, and the American Opportunity Tax Credit. Generally, married couples who file separately can’t claim these on a return.

Personal Residence Exclusion

The principal residence exclusion allows homeowners who meet certain criteria to shield all or a portion of the profit they make on the sale of their home from capital gains tax. Single filers can exclude up to $250,000, but couples who are married filing jointly can exclude twice that — up to $500,000.

While those numbers may have seemed generous just a few years ago, with the recent rapid rise in what homes are worth, tax consequences from a home sale may be more likely these days. The $500,000 exclusion married homeowners are allowed still may not be enough to protect their entire profit when they sell a home, but it can give them a little more breathing room than singles can count on.

Recommended: Does Net Worth Include Home Equity?

IRA for Jobless Spouse

Usually, under IRS rules, you can’t contribute to an individual retirement account (IRA) unless you earn an income in that year. But there’s a work-around that can benefit some married couples who file jointly.

If one spouse earns income and the other does not, and the couple files jointly on their taxes, the spouse who works can contribute to a “spousal IRA” that’s in the name of the spouse who isn’t working.

This allows couples to maximize their retirement savings — even if one spouse takes some time away from work, perhaps to care for their small children or elderly parents. And depending on what works better for your circumstances, you can use a Roth or traditional IRA as a spousal IRA.

The rules regarding annual contributions and tax deductions are the same for spousal IRAs as they are for traditional IRAs. If you have questions, you can ask your financial advisor or tax preparer, or go to the IRS website for information.

You Can Use Your Spouse as a Tax Shelter

If you or your spouse owns a business, you’re both probably hoping it’s a success. But if it isn’t, it could end up being a tax benefit — if you can claim those losses as a write-off on your joint return.

If it looks as though this strategy might be useful — especially in the first year or so of the business — you may want to ensure personal and business transactions stay separate by opening a business bank account. Or you can just keep better track of your income and spending with a free budget app.

Higher Deduction for Charitable Contributions

These days, nearly 9 out of 10 taxpayers take the higher standard deduction put in place by the TCJA — and that means they can’t claim a tax break for charitable contributions on their federal return.

But if you do end up itemizing on your return, being married could help you maximize the tax deduction you get for charitable giving. Although your maximum deduction is limited to a certain percentage of your adjusted gross income (usually no more than 60%), if you file jointly, the deduction is based on your combined AGI. That means you may be able to donate more in a particular year than a single filer.

Couples Can “Shop” for Tax-Friendly Benefits

Unless they’re both with the same company, a working couple may be able to pick and choose from their employers’ different benefits packages to take advantage of certain tax breaks. A couple of those benefit options might include:

Flexible Spending Account (FSA)

If one spouse’s employer offers an FSA, you may be able to use it to pay for qualifying medical, vision, and dental costs for your family, or for qualifying dependent-care programs. The amount you contribute to the account will be deducted from your salary pre-tax, which can help cut your income tax bill.

Health Spending Account (HSA)

If one employer offers a high-deductible health plan (HDHP) and you choose that health insurance option, your family can benefit from opening an HSA to save for future medical expenses.

Contributions to an HSA are tax-deductible, and distributions are tax-free when used for qualified medical expenses. Unlike the use-it-or-lose-it funds in an FSA, you can keep the money in the account as long as you like. And any growth in your HSA from interest and/or investment returns is also tax-free.

Filing One Return Instead of Two

Spouses who file jointly have to worry about completing only one income tax return. And if your financial lives already are intertwined (you do your budgeting as a couple and have a joint a bank account vs. separate accounts), it may be easier to file jointly than to separate everything for two returns.

It also could make it easier to get your return done by the tax deadline — or maybe even early, so you can get your tax refund faster. And if you hire a professional to prepare one return instead of two, it could save you some money.

How the Tax Cuts and Jobs Act Could Affect Future Taxes

The clock may be ticking on several of the tax benefits and penalties married couples can experience under the TCJA (some of which are listed above). Many of its provisions are set to expire at the end of 2025, including changes to:

•   Income tax brackets and rates

•   Standard deduction

•   Personal exemptions

•   Limits on deductions for mortgage and home equity loan interest

•   Limits on charitable contributions

•   Estate and gift tax exemption

If Congress doesn’t act to keep them, these provisions may lapse on Dec. 31, 2025, which could affect married couples’ taxes going forward. Keep this in mind as you do any tax planning for the future.

Recommended:Should I Sell My House Now or Wait?

Tax Downsides to Marriage to Consider

Besides the potential penalties already mentioned throughout this post, there can be other downsides to marriage when it comes to taxes, including:

•   When you sign a joint return, the IRS holds both spouses responsible for the validity of everything that’s on it. Even if one spouse manages the money in your marriage (paying the bills, investing, and doing the taxes), it’s a good idea to go over the return carefully together before you both sign.

•   If one spouse defaults on a federal student loan after you marry or owes back child support, your joint refund could be delayed or garnished to pay the debt.

•   If you’re a high-earning couple, you might have to pay the net investment income tax and/or the Medicare surtax. The threshold on these taxes is $200,000 for single filers, and only goes up to $250,000 for married couples filing jointly.

Recommended: What Is the Difference Between Transunion and Equifax?

The Takeaway

Marriage can impact just about every aspect of your life — including the taxes you pay. There are tax benefits and penalties to consider as you plan your future and your finances together. Some potential benefits include a lower tax bracket, estate tax advantages, the Earned Income Credit, and the Personal Residence Exemption, among others. But watch out for the net investment income tax and the Medicare surtax. According to the IRS, overall most couples benefit from filing jointly.

Keeping track of your combined spending, saving, and investing can make it easier to manage your money throughout the year, and to work on your taxes when it’s time. And a money tracker app can help you do it all in one place — with credit score monitoring, spending breakdowns, financial insights, 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

Is there a tax advantage to marriage?

While every couple’s situation is different, spouses who file jointly may enjoy some advantages when it comes to certain tax exclusions, exemptions, deductions, and credits.

Do you get a bigger refund if you’re married?

If your filing status is married filing jointly and you make the most of the many credits and deductions available to you as a couple, you may see a bigger refund.

Do you pay less taxes if you are married?

You won’t automatically pay less taxes because you’re married. But with careful planning, you may be able to take advantage of your marital status to save money on your income taxes.

Photo credit: iStock/simpson33

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.

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

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

SORL-Q324-033

Cars and trucks tend to lose value as they age and experience wear and tear through everyday use. This loss of value is known as depreciation. How much these vehicles tend to depreciate will vary. For example, trucks tend to hold their value better than cars.

That said, depreciation depends on a number of factors, such as make and model, age, mileage, and accident history. Here’s a closer look at what impacts car and truck value, and how depreciation can differ between the types.

What Is Vehicle Depreciation?

Cars and trucks lose value each year due to normal wear and tear. The rate of depreciation will vary depending on the make and model of a car. However, the first year tends to see the greatest depreciation, when cars lose as much as 20% of their starting value. For that reason, some consumers believe it’s wiser to buy a used car than a new car. Within the first five years of ownership, a vehicle can depreciate by as much as 60%.

Depreciation is not necessarily an accurate representation of wear and tear on a vehicle. You may find that after a number of years, your car has lost significant value even if it’s in pristine, like-new condition. Deprecation will continue to affect the value of your car until it reaches $0 on paper. At that point, your car no longer has any equity, and is not considered a financial asset. The only value left is the value of the metal for scrap.

Depreciation is an important factor to understand whether you are buying a used car, a new car, or if you plan to lease a vehicle. When leasing a car, your monthly payment will cover the cost of depreciation.

How Is My Car Value and Truck Value Depreciation Calculated?

There are various sources that supply car depreciation figures, including Kelley Blue Book and Edmunds. Each company has its own algorithm that accounts for the factors that affect depreciation, such as:

Mileage

How much a car or truck has been driven is often seen as a proxy for wear and tear. The more something is used, the more likely it is to wear out. As a result, vehicles that have been driven less tend to fetch higher values.

Make and Model

You can think of the make and model of a vehicle as the brand and specific product on offer. For example, Toyota is the make, while Tacoma is a specific type of truck the company builds. There may be a series of letters and numbers after the model name that further delineates the trim level of the vehicle. Trim level can refer to different features, engine size, or materials used in the making of the car or truck.

Some makes and models are more popular than others, and some models have higher trim levels. Both can help a vehicle hold its value longer.

Reputation

A vehicle’s reputation for safety and reliability can play a big role in its popularity. The higher the demand for a particular make and model, the more slowly it may depreciate.

Larger vehicles are typically safer than smaller cars, which helps explain why trucks tend to hold their value longer.

Fuel Economy

More fuel-efficient vehicles may also hold their value better than gas-guzzling counterparts, especially when fuel prices are high. Diesel trucks may depreciate more slowly than gasoline-powered cars and trucks because they tend to have more powerful engines, better fuel economy, and emit less carbon dioxide. A gallon of diesel contains roughly 10% to 15% more energy than a gallon of gasoline, and as a result, a diesel engine can go 20% to 35% farther on a gallon of fuel.

Local Market

Your local automobile market can also have a big impact on how much your car depreciates. For example, trucks may be in higher demand in rural areas, while cars may be more popular in urban settings. Vehicles with four-wheel drive may be more sought after in places with snow, while convertibles may be in higher demand in warm, sunny climates.

You may be asked for your zip code when you look up the value of your car. This can help valuation companies zero in on how much your car is worth in your locale. You can also use a money tracker app, like SoFi’s, to discover real-time vehicle values in just a few clicks.

Recommended: What Credit Score Is Needed to Buy a Car?

Average Truck Value vs Car Value Depreciation Comparison

Cars and trucks begin to depreciate as soon as they leave the lot. As mentioned above, they can lose as much as 20% in the first year alone, and up to 10% each year after that. By year five, a vehicle may have depreciated by as much as 60%.

That said, various types of cars and trucks tend to depreciate at different rates. And depreciation can vary a lot depending on current market conditions. For instance, iSeeCars research found that all types of vehicles held their value better in 2023 than they did in 2019, thanks in part to fewer new cars being produced and fewer used cars for sale.

In 2023, the average five-year-old vehicle depreciated by 38.8%, compared to 49.6% in 2019. And trucks held their value best of all vehicles, depreciating just 34.8% over five years in 2023, compared to ​​42.7% in 2019.
Here’s a look at of how different types of vehicles have depreciated over a five-year span:

Recommended: What Should Your Average Car Payment Be?

The Takeaway

While all cars are holding their value better than they did in 2019, recent research confirms that trucks hold their value the best of all vehicles. If you plan to trade in your car or truck after a few years, consider buying a vehicle that is likely to hold its value longer to get a better trade-in value.

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

At what mileage do cars lose value?

Cars and trucks unfortunately start to lose value as soon as you drive them off the lot. After that, depreciation is calculated each year.

Does mileage affect car value?

Mileage is one of the most important factors that go into car valuation. The higher the mileage, the more wear and tear the vehicle is presumed to have, and the less the vehicle will be worth.

At what age does a vehicle depreciate most?

Cars and trucks depreciate most in their first year, when they can lose 20% or more of their value.

Photo credit: iStock/timnewman

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.

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

SORL-Q324-004

There’s no one answer that fits all situations. The average American has 3.9 credit cards. But how many lines of credit you should have depends upon your needs, your skill at managing your finances, and your ability to make payments on time.

We’ll explore two types of credit lines, provide definitions of basic credit terms, and offer some broader context so that you can make the choice that’s best for you.

Line of Credit Definition

First, what is a line of credit? A personal line of credit (sometimes called a PLOC) allows consumers to borrow money as they need it, up to a set limit, and pay it off over time. A line of credit can be used to pay bills or make purchases directly or to withdraw cash with no cash-advance fee. As long as borrowers keep paying down the balance, they can keep borrowing. In other words, this is a type of revolving credit.

Lines of credit are usually granted only to people with good credit. Because they’re less risky for the lender, the interest rate can be lower than for credit cards.

How Does a Line of Credit Work?

Many banks, credit unions, and online financial institutions offer lines of credit. A distinguishing feature is the “draw period.” During that time — typically seven to 15 years — funds can be borrowed and repaid in a revolving way. When the draw period ends, users can no longer make purchases or withdrawals, though they can reapply to keep the line open. The repayment period can continue for additional five to 13 years.

To utilize a line of credit, consumers may receive checks, a card, or a direct deposit into their bank account. Funds can be used however they like, but generally go toward large purchases. Personal lines of credit often have a variable interest rate, with interest-only payments during the draw period.

Is It Possible To Have Too Many Lines of Credit?

In this case, a “line of credit” refers to both PLOCs and credit cards. All credit cards are a form of credit line, but not all lines of credit are associated with a credit card.

If a consumer has many credit lines, lenders may see them as high-risk — even if their balances are all zero. As noted above, the average American has four credit cards. New Jersey residents have the most credit cards in the country, with 4.5 on average. Older generations tend to carry more cards than Millennials and Gen Z. So while four lines of credit may be considered normal, it can be “too many” if a consumer has trouble juggling their bills and making payments on time.

Recommended: Should I Sell My House Now or Wait?

Is It Possible to Have Too Few Lines of Credit?

To build a strong credit score, it helps to have a variety of credit types. Credit mix accounts for 10% of a FICO® Score, and the ideal mix includes both revolving credit and installment loans like personal loans, car loans, and so forth. Although each person’s situation is unique, just having credit accounts and managing them well is what builds a good credit score. Having one or two cards can be enough.

Credit Card Definition

You may be wondering, if a line of credit can come with a card, then what is a credit card? Both credit cards and lines of credit are forms of revolving credit offered by many financial institutions. A credit card holder can also make purchases up to the credit card spending limit. However, credit card users can avoid interest charges by paying off the balance in full each month. Essentially, credit cards provide consumers with unlimited short-term loans for free (assuming there’s no annual fee).

Credit cards don’t have a draw period — they remain open as long as the account is in good standing. The average credit card limit, according to the latest report from credit bureau Experian, is $29,855.

Recommended: What Is the Difference Between Transunion and Equifax

Line of Credit vs Credit Card

A credit card — as the name implies — has a card connected to it, which allows the borrower to access funds. A line of credit doesn’t necessarily have a card connected to the account. Lines of credit tend to have lower interest rates and annual percentage rates (APRs) than credit cards and may have higher limits. So they may be better suited to large purchases, as noted above, that can be paid for over time.

Credit cards are easy to use for everyday purchases and often come with an interest-free grace period (from the purchase date until the payment date). Credit cards may provide rewards and perks that personal lines of credit do not. And applying for a credit card is usually a simpler process than the line of credit process.

Credit Score Risk Factors to Consider

How someone manages personal lines of credit and credit cards will have an affect on their credit score and, therefore, their ability to borrow at advantageous rates. Here are some ways your line of credit may negatively influence your credit score:

•   Credit utilization. After a large purchase, your credit utilization percentage will rise. Credit utilization accounts for 30% of your credit score.

•   Payment history. Late or missed payments can negatively impact your history. Payment history accounts for 35% of your FICO score.

•   Credit history length. A new line of credit will lower the average age of your credit history. Length of credit history accounts for 15% of your score.

Consumers who are concerned about their credit score may want to take advantage of a free credit monitoring service to see how their day to day actions impact their score.

Using Multiple Credit Cards

How many credit cards should you have? As long as you can responsibly manage your credit cards and haven’t applied for too many new ones in a short timeframe, then the number isn’t likely to have a negative impact on your credit.

However, the more cards you have, the more payments and due dates you’ll have to juggle. If you’re considering ways to use a credit card wisely, Ask yourself whether any of these issues apply to you:

•   Multiple annual fees are taking a bite out of your budget.

•   Monitoring your cards for fraudulent activity has become challenging.

•   Knowing you have cards with low or no balances makes it easier to overspend.

The Takeaway

The right number of credit lines varies by personal need and financial circumstances. Lines of credit include but aren’t limited to credit cards. What’s most important is to use them wisely to protect your credit score, avoid unnecessary debt, and manage your finances responsibly. It may help to know that the average American has about 4 lines of credit.

For a more holistic view of your finances — including your credit cards — consider enlisting the help of money tracker app. It can help you seamlessly manage your money by connecting all of your accounts on one convenient mobile dashboard.

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

How many lines of credit is good for your credit rating?

Specifics will depend upon your financial situation. Elements that go into credit score calculations typically include the borrower’s payment history (making payments on time is the biggest factor), outstanding balance amounts in comparison to limits, credit history length, having a good credit mix, and strategically applying (or not applying) for new credit accounts.

How many lines of credit is too much?

What’s most important is to have the right number for your financial needs and overall situation. Being able to responsibly manage the number of accounts you have is important since making payments on time is the biggest factor in your credit scores. While most Americans have about four lines of credit, that may be “too much” for some consumers.

What are some consequences of having multiple lines of credit?

It can be more challenging to keep track of payment dates and amounts, which may make it easier to make a payment late or miss it entirely. This can have a negative impact on your credit score. Plus, if accounts have annual fees, then having several of them can add up. Multiple lines of credit may also make it more difficult to spot fraud. That said, if someone can responsibly manage multiple lines of credit, then that may be the right number of accounts for them.

Photo credit: iStock/demaerre

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.

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-Q324-018

While some states have passed legislation ensuring paid family leave for employees at larger companies, many new parents have to make do with a combination of vacation time, sick days, and short-term disability if they want to be paid after the birth of a baby.

Read on to find out what parents may be entitled to based on state regulations and company policy, and how you can maximize your benefits so you can get paid while on maternity leave.

What Is Paid Maternity Leave?

Paid maternity leave (or paternity leave) refers to the time off with pay that some companies grant employees welcoming a new baby or adopted child. Workers often receive only a percentage of their full-time pay, typically 60% to 80%, with limits based on the statewide average pay.

In the United States, businesses are not legally required to give employees paid maternity leave. According to the Bureau of Labor Statistics, only 27% of civilian workers had access to paid family leave in 2023. The U.S. is the only wealthy nation in the world that doesn’t mandate paid parental leave.

Fortunately, 13 states and the District of Columbia have passed legislation guaranteeing paid parental leave. Two other states (New Hampshire and Vermont) do not legally guarantee the right to paid leave but they do provide a voluntary opportunity for workers to purchase insurance that covers paid leave. Federal workers nationwide are granted 12 weeks of paid family leave.

How Long Is Maternity Leave?

Companies that voluntarily provide employees paid parental leave offer an average of 10.5 weeks. Because many parents find this inadequate — experts recommend 3 to 6 months — even employees with paid leave often extend their leave with vacation time and sick days.

Globally, the average paid maternity leave is 18 weeks.

Benefits of Paid Family Leave

Research shows that paid family leave offers many benefits to parents and children. In one sense, the extra income helps families over the longer term, especially in lower-income households.

In another way, the time families spend together boosts the health of parents and children. Mothers are able to fully recover from childbirth, which can take six to eight weeks. And a child’s health is strengthened by the extra bonding time, regular breastfeeding, and reduced exposure to infectious disease.

Paid family leave may also cover other situations, including:

•   Adoption or foster child care

•   Care of a spouse, child, or parent with a serious health condition

•   A personal serious health condition

Recommended: How Much Does It Cost To Adopt a Child?

What Is the Family and Medical Leave Act (FMLA)?

The Family Medical Leave Act (FMLA) is a federal law passed in 1993 that grants unpaid but job-protected family leave for eligible employees of larger companies. Individuals can also take time off to care for any family member with a serious health condition.

The law is designed to help workers cope with emergencies that may occur without having to worry about losing their job. It also ensures that leave is available on a gender-neutral basis and supports equal employment opportunity for women and men.

FMLA Maternity Leave Eligibility Requirements

For an employee to qualify for FMLA benefits, both the employer and employee must meet certain requirements.

Employer Requirements

FMLA applies only to employers with 50 or more employees (who have worked at least 20 weeks in the current or preceding calendar year) within 75 miles.

Worker Requirements

An employee must have worked for their company for at least 12 months and worked 1,250 hours within the past 12 months. Some part-time workers may not qualify.

State Laws for Maternity Leave

As noted above, 13 states and the District of Columbia have passed paid parental leave legislation, including California, Colorado, Connecticut, Delaware, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Rhode Island, and Washington, plus the District of Columbia. Benefits and eligibility vary from state to state.

Ways to Extend Maternity Leave

Traditionally, women without adequate maternity benefits have made do by cobbling together vacation and sick days, short-term disability, and unpaid leave. More recently, working from home — sometimes on a reduced schedule — has allowed parents to extend their time at home with pay.

You may want to search for a parental leave consultant in your state, such as MilkYourBenefits.com in California. For a fee, these advisors can provide up-to-date information on family leave law and the benefits you may qualify for.

Recommended: Does Net Worth Include Home Equity?

How to Prepare for Maternity Leave

It’s a good idea to prepare financially for maternity leave well in advance. Put away money and save for your baby. Here’s a rough timeline to help you plan for the big event.

1. Research State Laws and Company Policies

Before you announce that you are pregnant, find out what your company and state rules are for maternity leave. You can also look into how your medical insurance will work while you are out and how to add your baby to your plan. Check whether your premiums will go up.

You don’t have to inform your employer at this early stage. Your company should have an employee handbook that outlines family leave benefits, or it might be written into your contract.

If you experience pre- or post-natal health problems (such as high blood pressure, gestational diabetes, preterm labor, or C-section), you might qualify for short-term disability. However, know that disability benefits for pregnancy-related reasons are available only in some states.

2. Develop a Maternity Leave Plan

Notify your employer of your pregnancy as you begin to show. Prepare for negotiating your leave by creating a plan for coverage while you are gone. For example, suggest a colleague you can train before you take leave. Explain how you plan to keep in touch with work while you are out. Read up on the motherhood penalty to understand how your career and financial situation may be affected and how you can prepare.

Company maternity leave policy is not set in stone. You can negotiate with your employer to extend your paid time off, or perhaps propose a work-from-home or part-time arrangement.

Your boss may not agree with your plan, so consider it a jumping off point. One tactic is to present to your employer two or three options that you can live with. Your supervisor may well pick one of them. Finally, put it in writing and have it signed so that your employer cannot renege.

3. Start Planning Your Budget

Once you have a general idea of your income during maternity leave, prepare a new budget that includes all of your anticipated expenses. Check out tips on how to budget on a fluctuating income and think about other things that may change your financial situation in the next year. Will you need a home loan while on maternity leave, for example?

A budget planner app can make the budgeting easier because it tracks your expenses for you and gives a breakdown of your spending by category. A grocery budget planner may come in handy as well.

4. Write a Plan for Your Replacement

Before you write out instructions for those who will cover for you while you are gone, have a discussion with your teammates to make sure they are on board. Include in your instructions the estimated dates that you will be gone, who will be responsible for what, and how you will communicate with your team (whether you will take part in meetings remotely, etc.).

The Takeaway

FMLA requires employers with 50 or more employees to offer up to 12 weeks of unpaid maternity leave, but only about one in four private companies offers paid maternity leave. Paid time may end up being cobbled together from a combination of vacation time, sick days, short-term disability, and work-from-home time. Make sure you carefully research the benefits that you’re entitled to based on state regulations and company policy.

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 questions should I ask HR before going on maternity leave?

Ask HR what benefits you are entitled to and how your health insurance will change after the birth or adoption. It’s also important to ensure the required forms are completed and any negotiated agreements for maternity leave are laid out in writing and signed by your employer.

How should you prepare financially for maternity leave?

In an ideal world, you would start saving for the baby before you are pregnant. Once you have negotiated your maternity leave and have an idea of your income, create a new budget that includes baby expenses.

Also check whether you qualify for any tax credits such as the Child Tax Credit, the Child and Dependent Care Credit, or the Adoption Credit and Adoption Assistance Programs. Taking out a College 529 savings plan for your child may have tax advantages.

What is short-term disability insurance and how does it impact maternity leave?

Short-term disability is an insurance program offered by some employers. Policies vary, but you might be entitled to 50% of your income or more for up to six weeks after giving birth if you have a C-section or experience complications. Check with your staff handbook and your HR department to find out if you might be eligible for short-term disability.

Photo credit: iStock/Maria Korneeva

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.

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

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

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

SORL-Q324-016

If you’re looking to rent an apartment or house, the landlord may require a tenant background and credit check. These checks primarily serve to verify an applicant’s personal information and show landlords whether the tenant can afford the monthly rent payments. However, landlords may also screen prospective tenants for previous evictions, criminal behavior, and evidence of poor financial judgment.

Tenant credit and background checks can include a lot of “private” information you may not be aware of. Find out what a landlord sees when they order a tenant screening report or a background check.

What Landlords Learn From Tenant Credit and Background Checks

Landlords primarily want to verify an applicant’s personal information and confirm they can afford the monthly rent. Landlords may also do tenant background search to check for information, such as a history of bankruptcy, that would indicate a prospective tenant isn’t good at managing their finances. They are also typically interested in any history of eviction or a criminal record. Tenant credit and background checks therefore play a crucial role in helping landlords screen potential tenants and decide whether they want to rent to a particular applicant. Learn more about some of the things a landlord will be looking at below.

Address

Credit reports will contain the applicant’s current address, which is used to help confirm someone’s identity. Unfamiliar addresses can be a sign of identity theft or other fraud.

Address History

Credit reports also contain previous home addresses, and may also include other addresses where the applicant has received mail. The report can also include workplace addresses, post office boxes, and addresses of other people with whom the applicant has a joint bank account.

Recommended: Does Net Worth Include Home Equity?

Employment History

A background check typically won’t include information about a potential tenant’s education or employment. However, a landlord may request that the agency conducting tenant screening service or the background check provide verification of employment. This involves confirming that the information on the rental application is accurate.

Whenever someone provides information about an employer in applying for credit, this information has the potential to show up on credit reports. A credit check for employment will include most of the same information that a landlord receives; one exception is the prospective employee’s date of birth.

Income

Background checks don’t typically include income information, although this sometimes happened in the past. In numerous cities and states around the U.S., employers can no longer ask about salary history as part of an employment application. That legislation now makes this information harder to get, overall. Instead, landlords likely rely on your ability to meet your current bills as a sign of your financial stability.

Credit Score

Landlords are interested in your credit score because many of the factors that go into computing your credit score are an indication of your overall financial management skills. What credit score is needed to rent an apartment or house varies by location and landlord. Many landlords want to see a “Good” score”: 670–739, or more. A tri-merge credit report shows your scores from the largest credit reporting bureaus, including TransUnion and Equifax.

Tradelines

“Tradelines” just refer to the various accounts on a credit report: mortgage loan, car loan, credit card account, and so forth. Tradelines are either revolving (lines of credit, including credit cards) or installment loans (such as personal loans).

Recommended: What Credit Score is Needed to Buy a Car?

Collections

If an unpaid bill goes to collections, it typically stays on a tenant’s credit or credit report for seven years — although its impact on credit scores can lessen over time. If the debt has been paid, it should show up as “settled” or “paid in full.” Some landlords may see payment of an account in collections as a plus, a sign of growing financial responsibility.

Consumer Statements

If a potential tenant has negative information on their credit report, they may add a consumer statement to provide an explanation of what happened. These statements don’t change the credit history or score, but a landlord may take the explanation into account when deciding whether to rent to the person.

Inquiries

There are two ways for a credit check to be performed: a soft credit inquiry vs. hard credit inquiry. Hard inquiries are usually performed when someone applies for a credit card or loan, and these may show up on the credit report. Soft inquiries pull data but don’t affect credit scores. Rental applications usually involve a soft inquiry.

Public Records

Background checks can include public record information. Each state determines which government records are considered “public.” They can include birth and marriage certificates, voting records, immigration records, driving records, tax information, and more.

Eviction Records

According to credit agency Experian, an eviction won’t appear on a tenant screening or credit report, but any unpaid rent sent to collections may stay on the report for up to seven years. If a landlord took the tenant to court and won a civil judgment, that would likely appear on the tenant background check and credit report.

Criminal Records

Background reports include information gathered from criminal record databases. The check may include records from any county where the applicant has lived. Criminal checks can also be conducted at a state or federal level. Some cities now prohibit landlords from requiring prospective tenants to disclose a criminal history.

What Landlords Especially Want to Know from Tenant Credit Checks

According to credit bureau TransUnion, landlords want to look at a prospective tenant’s debt history to determine if they’re likely to pay rent on time. Red flags include a short rental history, late payments, a low credit score, a significant amount of debt, gaps in payments, delinquent payments, and other negative information. Landlords also want to be aware of any previous evictions or criminal background.

Consumers can prepare for credit checks by landlords through free credit monitoring services.

How Long a Tenant Credit and Background Check Takes

Credit checks typically take no more than a day, depending on the system used by the landlord. Background checks can take a few days, depending on the circumstances. This doesn’t account for the amount of time it takes for the screener to get to that application, or the time the landlord spends reviewing the application afterward.

Do Landlords or Applicants Pay for the Credit and Background Check?

Tenants often cover the cost as part of a rental application fee. A landlord can choose to absorb the cost, but it depends on the property owner, circumstances, and local laws.

A landlord may also ask for a credit reference on a rental application. A credit reference can be a copy of your credit report that you provide, or a letter from a bank, lender, or previous landlord offering additional positive context to your credit history.

Checking Credit History Before Applying to Rent

As a tenant, it’s wise to be aware of what’s on your credit report and to fix any errors before you apply for an apartment. You can find out your credit score for free through Experian at AnnualCreditReport.com. Review your information and file a dispute online to correct any mistakes, remove older negative information, and alert the credit bureau to potential identity theft.

Continue to watch your credit and be mindful of any changes to your credit score. To save time, you may want to sign up for a credit monitoring service. What qualifies as credit monitoring varies with the service provider. Look for a service that offers instant alerts for suspicious charges and negative information posted to your report.

The Takeaway

Landlords primarily run tenant background checks and credit report checks to determine if the prospective renter can afford the monthly rent payments. Landlords may also be interested in previous evictions and criminal activity. These reports also serve to provide verification of personal information and may reveal additional information available on public records.

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 background check do most landlords use?

There are numerous background check services. If you want to know which one a potential landlord uses, it’s best to ask them.

What does a landlord look for in a tenant?

Although landlords can have individual preferences about what makes an ideal tenant, common things they look for include tenants who:

•   can afford their rent and pay on time

•   take good care of the property

•   don’t cause problems for the landlord

A tenant background and credit check can help landlords to screen applicants to find the best possible tenant.

What does a background check consist of?

When including a credit report, information provided generally lists a person’s current and past addresses, employment history, credit history, public records information, criminal records, and more. In some circumstances, a person’s eviction history can also be included.

Photo credit: iStock/andresr

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.

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

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

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

SORL-Q324-019