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Q: How do you calculate gross income from a W-2 form?

Gross wages cannot always be found on a W-2 form, due to various pre-tax deductions. Instead, look at the gross amount listed on the employee’s final paycheck for the year.

Jun

2024

How to Calculate Gross Monthly Income From Biweekly Pay Stub

By Laurel Tincher | Financial Independence, Life & Career, relay | Comments Off

Gross income is the amount of money earned before any payroll deductions for taxes, insurance, retirement contributions, and such. To calculate gross monthly income from a biweekly paycheck, find the gross amount listed on the pay stub (usually the starting number). Multiply that figure by 26 (the number of paychecks received in a year), then divide by 12 (months in a year).

The calculation for gross monthly income can differ depending on paycheck frequency. Below we’ll show you how to calculate your gross pay for different payroll schedules.

Table of Contents

How to Calculate Monthly Pay From Biweekly Pay
How Many Bi-Weeks in a Year
The Different Types of Payment Periods
Pros and Cons of Biweekly vs Semimonthly Pay
The Takeaway

Key Points

• Gross monthly income is calculated by adding up all sources of income before deductions.

• It includes wages, salaries, tips, bonuses, commissions, rental income, and other forms of income.

• To calculate gross monthly income, add up the amounts earned from each income source.

• Gross monthly income is important for budgeting, loan applications, and determining affordability.

• It is essential to accurately calculate gross monthly income to make informed financial decisions.

How to Calculate Monthly Pay From Biweekly Pay

There are two different monthly pay figures to understand, gross and net. Each is useful in different situations. When you’re applying for a loan, most lenders use gross monthly income to determine your debt-to-income ratio (DTI). However, many people find it easier to budget based on net or take-home pay. A budget planner app can help you decide the best approach for your situation.

As we spelled out above, if you’re paid biweekly (every two weeks), the formula for gross monthly income is:

(Gross pay amount × 26) ÷ 12

Hourly workers can also use this next formula if they work a consistent number of hours per week:

(Hourly salary × weekly hours worked × 52) ÷ 12

To find net monthly pay, substitute the actual amount of your paycheck for the gross amount in the first formula.

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How Many Bi-Weeks in a Year

There are 26 biweekly pay periods in a year. Employees who get paid biweekly will receive 26 paychecks from January to December.

It’s important to note that receiving pay biweekly differs from receiving pay twice a month on the same dates. Workers who receive biweekly checks can’t just multiply one paycheck by two to find their monthly salary.

Employees who get paid twice a month — for instance, on the 15th and 30th — can find their monthly gross income simply by adding together the gross figures on their two monthly paychecks.

The Different Types of Payment Periods

The most common pay periods for employees are:

• Biweekly: Paid every other week, or 26 paychecks per year.

• Semimonthly: Paid twice a month on the same dates, or 24 checks per year.

• Weekly: Paid once a week, or 52 checks per year.

• Monthly: Paid once a month, or 12 checks per year.

Employees who receive biweekly pay get two checks or direct deposits each month, except for two months of the year when they receive three paychecks. Employees who are paid biweekly might get a paycheck every other Wednesday or Friday, or whatever day their employer chooses.

With semimonthly pay, an employee might get paid on the 15th and 30th of every month. There are always two paydays, for a total of 24 per year instead of 26.

An employee who gets paid twice a week is on a semiweekly schedule. This would entail eight paychecks each month.

Pros and Cons of Biweekly vs Semimonthly Pay

For employees, there are pros and cons to biweekly pay. Depending on their expenses and savings strategy, someone might prefer a biweekly or semimonthly schedule.

For most workers, the main pro to biweekly pay is the third “bonus” check they receive two months out of the year. By budgeting for two paychecks every month, workers can designate the occasional third check for special line items like vacations, holiday gifts, paying off debt, or boosting savings.

For others, biweekly checks just make budgeting and managing expenses more challenging. Semimonthly pay is preferable because it offers an accurate reflection of real monthly income.

Also, each semimonthly check can be dedicated to particular expenses. For example, the second check of the month can go to rent, utilities, and other housing costs, which are often due the first of the month.

Compared to weekly paychecks, both biweekly and semiweekly checks require better cash management on a weekly basis. For someone who lives paycheck to paycheck, biweekly pay periods might mean they run out of money before the next check arrives.

The Takeaway

To calculate gross monthly income from a biweekly paycheck, find the gross amount listed on the pay stub, multiply by 26, then divide by 12. (Do not use this formula if you’re paid twice a month on the same dates, rather than the same days of the week.) For your monthly net pay, substitute your net or take-home pay for the gross amount in the same calculation.

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FAQ

How do you convert biweekly pay to monthly income?

To calculate gross monthly income from a biweekly paycheck, find the gross amount listed on the pay stub (usually the starting number). Multiply that figure by 26 (the number of paychecks received in a year), then divide by 12 (months in a year).

How do I calculate my gross monthly income?

Gross monthly income is the total of all paychecks and income received in a month, including any side hustles, rental income, etc., but before taxes and other deductions.

How do you calculate gross income from a W-2 form?

Gross wages cannot always be found on a W-2 form due to various pre-tax deductions. Instead, look at the gross amount listed on the employee’s final paycheck for the year.

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Jun

2024

Health Savings Account (HSA) vs. Health Reimbursement Arrangement (HRA): What’s the Difference?

HSA vs HRA: Main Differences and Which Is Right for You

By Emily Greenhill Pierce | Budgeting & Goals, Financial Independence, money | Comments Off

Both health savings accounts (HSAs) and health reimbursement accounts (HRAs) offer tax-advantaged ways to save for future medical expenses. But they work in very different ways.

An HSA allows you to set aside money for healthcare costs that are not covered by your health insurance plan on a pre-tax basis. You must have a high-deductible health plan (HDHP) to open an HSA. With this option, you own the account and can take it with you if you leave your job.

An HRA, on the other hand, is a type of account that is owned by your employer. The company puts money into the account on your behalf, and you can use your HRA funds, tax-free, to cover qualified medical costs throughout the year. However, you can’t take the account with you if you leave your job.

If you’re looking for a way to reduce your healthcare costs, it’s a good idea to understand HSAs vs. HRAs. Then, provided you are eligible, you can decide which is the best option for you and your family. There is also a chance you can opt into both types of accounts.

Differences Between an HSA and HRA

HSAs and HRAs work differently than other types of savings accounts. Here’s how these two types of accounts compare at a glance.

	HSAs	HRAs
Owned by	Individual	Employer
Who can contribute	Individual, family members, employer	Employer only
Are contributions pretax?	Yes	Yes
Portable?	Yes	Not typically
Money can be invested for growth?	Yes	No
Need a high-deductible health plan to qualify?	Yes	No
Can I use the money for nonmedical expenses?	Yes (though you may owe taxes and/or penalties)	No

What Is an HSA?

A health savings account (HSA) allows employees and freelancers to put away funds pretax to be used for future medical expenses. There is one major requirement for an HSA: You must be enrolled in a high-deductible health plan (HDHP). For 2024, a HDHP is defined as having deductible of at least $1,600 for an individual and $3,200 for a family. In addition, the plan’s cap on yearly out-of-pocket expenses can’t exceed $8,050 for an individual or $16,100 for a family.

Your employer may offer an HDHP with an HSA as a workplace benefit. Or, if you enroll in health insurance through the private marketplace and choose an HDHP, you can typically open an HSA with a brokerage firm or other financial institution.

There are limits on how much you can contribute to an HSA. In 2024, those limits are:

• Up to $4,150 to an HSA for self-only coverage

• Up to $8,300 for family coverage

• People age 55 and over can contribute an additional $1,000 annually

Unlike a flexible spending account (FSA), which also allows you to set aside a certain amount of money pretax for medical costs, the money in the HSA isn’t a “use it or lose it” proposition. The funds roll over every year, so there’s no rush to spend the money. In addition, you can take HSA with you should you leave your job.

You can use your HSA to directly pay for qualified medical expenses (typically using a debit card or via online payment), or you can collect receipts and reimburse yourself later. Any expense that is considered a deductible medical expense by the IRS qualifies. This includes doctor visits, prescription medications, dental and orthodontic treatments, lab tests, surgeries, hospital stays, hearing aids, and eyeglasses.

While an HSA is designed to cover immediate healthcare costs, many HSA providers allow you to invest a portion of your HSA funds in various investment vehicles, such as mutual funds, stocks, bonds, and exchange-traded funds (ETFs). These investments grow tax-free. You can access unused HSA funds during retirement for nonmedical expenses, but you will pay taxes on the funds.

Pros of an HSA

Here’s a look at some of the benefits of using an HSA.

• Lowers your taxable income: Contributions are made with pretax dollars, often through payroll deductions by your employer. That means the money is not included in your gross income and is not subject to federal (and in most cases, state) income taxes.

• Tax-free withdrawals: Withdrawals from your HSA are not subject to federal (and in most cases, state) taxes if you use them for qualified medical expenses.

• Lower premiums: To qualify for an HSA, you must be enrolled in a HDHP, which means your monthly payments are likely lower than other types of health insurance plans.

• Annual rollover: HSAs aren’t “use it or lose it.” You keep your money even if you don’t spend it in the year you contributed it.

• Money can be invested and grow tax-free: Once you reach a required minimum balance (which can range from $500 and $3,000), you can choose to invest your HSA dollars.

• Can boost retirement savings: After the age of 65, you can withdraw the funds for any purpose, not just qualified medical expenses. Using the funds this way makes them taxable, but does not carry a penalty.

• You own the account: The money in an HSA is yours; you don’t forfeit it if you change jobs or are let go.

Cons of an HSA

There are also some potential disadvantages to HSAs. Here are some to consider.

• Only allowed with a high-deductible health plan: If you don’t enroll in an HDHP, you can’t open an HSA.

• Contribution limits: You can only contribute up to $4,150 for individual coverage and up to $8,300 for family coverage in one year.

• May come with fees: Some HSAs charge maintenance fees, investment fees, paper statement fees, and per-transaction charges. It’s a good idea to ask for a complete schedule of fees before you choose an HSA.

• Penalties for nonqualified expenses: If you withdraw money from your HSA to pay for anything other than qualified medical expenses before you turn 65, the withdrawal will be subject to taxes and a 20% penalty.

• Limited investment options: You may have a limited choice of investment options within your HSA, which limits the potential returns you can earn.

• Investments can lose money: Any investments you make with HSA funds could cause your balance to fall if the market drops.

• Requires careful record keeping: It’s crucial to maintain accurate records of your expenses and HSA transactions for tax purposes. Keeping track of the transactions can be a chore.

What Is an HRA?

A health reimbursement account (HRA), sometimes referred to as a health reimbursement arrangement, is a job perk that some companies offer to workers to help make healthcare more affordable. The employer owns and funds the account. You do not need (nor are you allowed) to make any contributions to the account.

You can use the money in an HRA to pay for medical care you’d otherwise need to pay for out of pocket. The details, including how much is in the HRA and what type of medical expenses the funds can be used for, are determined by the employer.

In some cases, the HRA will reimburse the healthcare provider directly. In others, you might use a debit card associated with the HRA or pay for expenses out of pocket and then submit expenses and request reimbursement.

You are not taxed on the money your employer puts in your HRA, and you can withdraw the money for qualified medical expenses tax-free. However, you don’t own the account, can’t invest the money, and will lose the HRA if you leave your job (unless you choose COBRA continuing coverage).

In some cases, an employer might allow unused funds in an HRA to carry over from one year to the next, but they are not required to do so.

Pros of an HRA

Here’s a look at some of the key benefits of having an HRA.

• Reduces your healthcare costs: You can withdraw money from the HRA to cover qualified medical expenses you’d otherwise have to pay for yourself. This may include deductibles, coinsurance, copayments, prescriptions, and more.

• No high-deductible health plan requirement: You don’t need to enroll in a HDHP to have an HRA.

• No contribution limits: There is no cap on how much money an employer can contribute to an HRA.

• Some HRAs may cover insurance premiums: If you work for a small business that does not offer a group health plan, you may be able to use your HRA to purchase an individual health plan, as well as cover out-of-pocket expenses.

• The HRA doesn’t count as income: Your employer’s contributions to an HRA do not count toward your gross income. And when you file a claim for a qualified medical expense, the reimbursement is tax-free.

• Some HRA plans allow you to roll over unused funds to the next year. Your employer determines whether or not this option will be available.

Cons of an HRA

HRAs also have some downsides. Here are some to keep in mind.

• You can’t contribute to an HRA: With this type of savings account, you are limited to whatever your employer contributes to the account.

• Money in an HRA cannot be invested: This means that the funds will not grow over time.

• You may lose the money if you don’t use it: In many cases, the money in the HRA must be spent the year it is contributed or you lose it. Employers can, but do not have to, allow some funds in your HRA to carry over to the next year.

• You can’t take it with you. Your employer owns the account, and you lose your HRA money if you leave your job unless you elect COBRA coverage.

• Inconsistent guidelines. HRAs are not standardized. As a result, an HRA offered by one company may have very different rules from an HRA offered at another company, which can lead to confusion.

• Lack of availability. Not all companies offer HRAs. Also, self-employed people cannot participate in an HRA.

Which One Is Right for You?

When deciding if an HRA vs. HSA is better, the choice may be made for you. Many companies only offer one or the other. And if you’re self-employed, you won’t have access to an HRA.

If your employer offers both an HDHP and an HSA, as well as an HRA, you might be able to have both an HSA and an HRA. Generally, this is only possible if the employer’s HRA is limited in scope, such as one that only covers vision and dental expenses or just insurance premiums.

In this scenario, you may be able to contribute money into an HSA, where it can grow tax-free and potentially boost your retirement savings, while using the HRA to cover the cost of certain medical expenses. You can’t double dip, however, meaning you’re not allowed to get reimbursed by both accounts for the same expense.

In the end, whether to choose an HRA vs. an HSA will depend on which health saving plan (or plans) you are eligible to access and what type of health insurance you have.

The Takeaway

Health reimbursement accounts (HRAs) and health savings accounts (HSAs) can both reduce the cost of medical care that your health plan doesn’t cover, but they do so in different ways. The main difference between HRAs and HSAs is that you own and fund your HSA, while your employer owns and funds your HRA and can impose more limitations on it.
Whether your employer offers an HRA or an HSA, it’s a valuable workplace benefit. Both types of accounts help ensure you have funds you can tap to cover copays, high deductibles, and other out-of-pocket medical expenses.

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FAQ

Is it better to have an HRA or HSA?

It depends. Not everyone has access to a health reimbursement account (HRA); these accounts are created and funded by an employer as a workplace benefit. HRAs can cover a wide range of medical expenses, but funds are typically forfeited if you leave the company.

A health savings account (HSA), available with high-deductible health plans, allows you to contribute pretax dollars, grow the balance tax-free, and use the funds for qualified medical expenses. HSAs are portable and roll over annually.

The best option depends on your employment status, health insurance plan, and preference for control over the funds.

Can I use both an HRA and HSA?

Generally, having a health reimbursement account (HRA) disqualifies you from contributing to a health savings account (HSA). However, certain types of HRAs, such as limited-purpose HRAs, can be paired with an HSA. It’s essential to check with your employer and plan documents to understand the specific terms and ensure compliance with IRS guidelines.

Can I have an HSA if my husband has an HRA?

Not typically, but there are some exceptions. If you have a high-deductible health plan and your husband’s health reimbursement account (HRA) covers premiums-only or just certain types of medical expenses (such as only vision and dental), you may be eligible to contribute to a health saving account (HSA). You’ll want to verify the specific terms of the HRA to ensure compliance with HSA eligibility rules.

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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.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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Jun

2024

What Is Earned Income vs Unearned Income?

By Austin Kilham | Financial Independence, Life & Career, relay | Comments Off

There are two basic types of income: earned and unearned. Earned income is the money you make from working, and unearned income is money you receive that isn’t tied to a business or job.

The difference between these two types of income is very important when it comes to saving for retirement and paying your taxes. Here’s what you need to know about each of them, and how they affect your finances.

What Is Unearned Income?

Unearned income is a type of passive income. It’s money you make without working or performing some kind of professional service. For example, money you get from investing, such as dividends, interest, and capital gains is unearned income.

Other types of unearned income include:

• Retirement account distributions from a 401(k), pension, or annuity

• Money you received in unemployment benefits

• Taxable social security benefits

• Money received from the cancellation of debt (such as student loans that are forgiven)

• Distributions of any unearned income from a trust

• Alimony payments

• Gambling and lottery winnings

Dividends from investments in the stock market and interest are two of the most common forms of unearned income. Dividends are paid when a company shares a portion of its profits with stockholders. They may be paid on a monthly, quarterly, semi-annual, or annual basis.

Interest is usually generated from interest-bearing accounts, including savings accounts, checking accounts, money market accounts, and certificates of deposit (CDs).

How Is Earned Income Different From Unearned Income?

Earned income is the money you make from a job. Any money you earn from an employer — including wages, fees, and tips in which income taxes are withheld — counts as earned income.

If you’re part of the freelance economy and the companies you work for don’t withhold taxes, those wages still count as earned income. These could be wages earned by performing professional or creative services, driving a car for a ride share service, or running errands.

Money you make from self-employment — if you own your own business, for example — also counts as earned income, as does money you earn from a side hustle.

Other types of earned income include benefits from a union strike, disability benefits you receive before you reach full retirement age, and nontaxable combat pay. This guide can help you learn about all the different types of income there are.

You can keep tabs on all the types of income you have by tracking your checking, savings, investment, and retirement accounts in one place with an online money tracker. It allows you to organize your accounts on a single dashboard, as well as monitor your credit score and budget for financial goals.

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How Income Types Affect Taxes

All earned income is taxed at your usual income tax rate. Taxes on unearned income are more complicated and depend on what type of unearned income you have, including:

Interest

Interest, which is unearned income from things like bank accounts and CDs, is taxed the same as earned income that you work for.

Dividends

Dividends from investments fall into two categories: qualified and non-qualified. Generally speaking, qualified dividends are those paid to you by a company in the U.S. or a qualified foreign company, and are taxed at a lower rate. Non-qualified dividends don’t meet IRS requirements to qualify for the lower tax rate and are taxed at the same rate as ordinary income.

Capital Gains

Investments that are sold at a profit are subject to capital gains taxes. If you held the investment for less than a year, your profits are subject to short-term capital gains rates, which are equal to your normal income tax rate. If you kept the investment for a year or more, it’s subject to long-term capital gains rates, which means it will be taxed at 0%, 15% or 20%, depending on your taxable income and filing status. The higher your taxable income, the higher your rate.

Social Security

If your income is more than $25,000 a year for individuals or $32,000 a year for married couples filing jointly, you will pay federal income tax on a portion of your Social Security benefits. You’ll be taxed on up to 50% of your benefits if your income is between $25,000 and $34,000 for an individual, or $32,000 to $44,000 for a married couple. And you’ll be taxed on up to 85% of your benefit if your income is more than that.

Alimony

As a result of the Tax Cuts and Jobs Act of 2017, alimony payments that are part of divorce agreements made after January 1, 2019, are not taxable by the person who is paying the alimony, nor are they taxable for the person receiving the alimony.

Gambling Winnings

Money you earn from gambling — including winnings from casinos, lotteries, raffles, and horse races — are all fully taxable. This applies not only to cash, but also to prizes like vacations and cars, which are taxed at their fair market value.

Debt Cancellation

If you have a debt that is canceled or forgiven for less than the amount you were supposed to pay, then the amount of the canceled debt is subject to tax and you must report it on your tax return.

If you have debts to pay off, debt payoff planning can help you pay what you owe.

How Earned vs. Unearned Income Affects Retirement Savings

Retirement accounts, including 401(k)s, IRAs, and the Roth versions of both, provide tax advantages that help boost the amount that you are able to save.

For example, 401(k) contributions are made with pre-tax dollars, which can then be invested in the account. The investments are then allowed to grow tax deferred until withdrawals are made in retirement, and then they are subject to income tax. Contributions to Roth accounts are made with after-tax dollars. These grow tax free, and withdrawals made in retirement are not subject to income tax.

You must fund your retirement accounts with earned income. You cannot use unearned sources of income to make contributions.

There are certain exceptions to this rule. If you’re married and you file a joint return with your spouse and you don’t have taxable compensation, you may be able to contribute to an IRA as long as your spouse did have taxable compensation.

The Takeaway

The difference between earned income and unearned income is an important distinction to comprehend, especially when it comes to paying your taxes. Unearned income, which is income you make not from a job but through other means, such as investments, can be taxed at different rates, depending on what type of unearned income it is. Make sure you understand yours — and the tax implications. Doing so can have a big impact on how you save for your future.

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FAQ

Why do I need to know the difference between earned and unearned income?

It’s important to understand the difference between earned and unearned income because the two may be taxed differently. Also, in most cases, you must use earned income to fund your retirement accounts.

What is an example of unearned income?

Unearned income is money you receive without working for it. Interest, such as that from a bank account, and dividend payments are two of the most common types of unearned income.

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*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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

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

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

SORL-Q224-1921188-V1

Jun

2024

What Is Competitive Pay and How to Negotiate For It

What Competitive Pay Is and How to Negotiate for It

By Anil Sharma | Financial Independence, Life & Career, relay | Comments Off

“Competitive pay” is a term commonly used among employers looking to attract qualified candidates to their business. Offering competitive pay means providing a compensation level that is equal to or above the market rate for a given position, geography, or industry.

Competitive pay typically includes base salary as well as additional employment benefits such as a signing bonus, health insurance, retirement benefits, or stock options offered to an employee.

Why Is Competitive Pay Important?

In highly competitive job fields, or when there is a shortage of talent, offering competitive pay can be a powerful lever for employers to attract and retain highly qualified employees. At the same time, employees who are in high demand might choose to seek out competitive pay in order to earn more than their counterparts at other companies.

Competitive pay is ultimately a measure of an employee or job candidate’s value to the business, and is something that can be offered by an employer or negotiated by an employee or candidate.

But whatever your take-home pay is, a money tracker can help you monitor your spending and provide valuable financial insights.

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What Determines Competitive Pay?

Competitive pay rates can be determined by a variety of factors:

Location

Where you are physically located can greatly impact the competitiveness of the pay you are offered. For example, an employee in a metropolitan area like New York or San Francisco with a higher cost of living may be able to earn more than a counterpart in a more affordable geographical area. Certain states also have higher minimum wage standards, which can increase the average compensation for any job offered within that state.

Level of Education and Experience

Many jobs will offer competitive pay commensurate with a candidate’s education and experience. That means that a candidate with a college degree and 10 years of industry experience may be offered higher compensation than someone with no degree and fewer years of experience. Candidates with specialized degrees or certifications can sometimes use that to negotiate more-competitive pay.

Job Title and Industry

Most job titles and industries will have a baseline market pay rate that employers use to guide their job offerings and employee salaries. If you want to compare a job offer with the market, you can find market pay rates for most jobs on the Bureau of Labor of Statistics website or through websites like Indeed and Glassdoor.

Market Demand

One of the biggest drivers of competitive pay is the overall supply and demand for a job in the market. If a job is highly in demand, either due to a shortage of workers or a sudden increase in the number of available jobs, compensation for that role may become more competitive. Candidates can potentially use that to their advantage when applying to jobs and negotiating salaries with employers.

Competitor Salaries

Similarly, when multiple companies in the same or adjacent industries are competing for employees, they may offer more competitive compensation packages to try and win over prospective job candidates.

Minimum vs. Competitive Wages: How They’re Different

While competitive wages are offered at the discretion of employers, minimum wage is the minimum hourly pay rate under federal law. States can also establish and enforce minimum wage requirements for certain jobs or industries.

Like competitive pay, minimum wage typically takes into consideration living costs, geography, and job titles or industries. However, it tends not to change as often or dramatically as competitive wages. In fact, the current federal minimum wage of $7.25 per hour has not changed since 2009. Also, minimum wage only takes into consideration base salary, whereas competitive pay includes other benefits and forms of compensation, such as signing bonuses.

Examples of Competitive-Paying Jobs

Competitive pay rates are constantly shifting, especially as the market for talent becomes increasingly competitive. However, here are the some of the most competitive-paying jobs in 2023 — the most recent data available from the BLS:

Cardiologists

• Average annual salary: $423,250

Computer and Information Systems Managers

• Average annual salary: $180,720

Lawyers

• Average annual salary: $176,470

Financial Managers

• Average annual salary: $166,050

Physicists

• Average annual salary: $158,270

Recommended: The Highest-Paying Jobs by State

How to Negotiate for More Competitive Pay

Whether you’re applying for a new job or reconsidering your current employment situation, negotiating competitive pay is an important part of getting paid what you believe you are worth. There isn’t an exact formula for negotiating higher pay, and it’s important to take a methodical approach that considers both your needs and the perspective of your employer. Here are five strategies that can help you in the course of negotiating competitive pay:

1. Establish your priorities

Going into a pay negotiation, you should think about what you would need financially to consider joining or staying with a company. You’ll want to determine your needs, including any debt you may be paying off — a online budget planner can be a useful resource. Then once you have a number in mind, try to identify a compensation package that meets your financial requirements.

Competitive pay can also mean different things to different employees. For some, it may mean a higher base salary, while others may want other perks like assistance in paying off college tuition or student loan debt, greater workplace benefits, or better health coverage. Identifying exactly what you need is important for deciding when it makes sense to push back or walk away from a negotiation.

2. Build Your Case

Even in competitive markets, an employer may not be willing to meet your salary or benefits requirements. However, going into that conversation with evidence and clear reasoning for why you are asking for more competitive pay can help support your case.

You’ll want to clearly show why you believe your compensation isn’t as competitive as you’d like it to be, due to the fact that you’ve been working harder, delivering greater value to the business, or have incurred higher living costs.

3. Know Your Pay Rate in the Market

Before negotiating, it’s also important to research how the competitive rate for your specific job title or industry has changed. Or, if you’ve suddenly taken on additional responsibilities outside of your core job function, you may want to look at what similar employees in those roles are getting paid and factor that into your pay rate. All of that data will help you to know what you’re worth as an employee and be able to communicate it to your employer.

The Takeaway

“Competitive pay” is a term commonly used among employers to refer to a compensation level that is equal to or above the market rate for a given position, geography, or industry. Other factors that help determine competitive pay include a candidate’s education and experience, and market demand.

SoFi helps you stay on top of your finances.

FAQ

Is competitive pay a red flag?

“Competitive pay” has become an industry buzzword used by many employers on their job postings and websites. While seeing “competitive pay” on a job posting isn’t a red flag, it’s still important to conduct your own research to ensure pay rates are competitive with similar industries, geographies, and employers.

Does competitive pay come with good benefits?

Competitive pay does not necessarily come with good benefits like 401(k) matching, health insurance, or paid time off. However, those benefits are becoming increasingly important for job seekers. When analyzing competitive pay, it’s important to look at an employer’s full compensation package (benefits and salary) to ensure it meets your needs.

Photo credit: iStock/insta_photos

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.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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-Q224-1921242-V1

Jun

2024

25 High-Paying Trade Jobs in Demand

By Anil Sharma | Building Your Career, Life & Career, relay | Comments Off

With the cost of higher education out of reach for many, more young people are flocking to high-paying trade jobs that don’t require a bachelor’s degree. Many of these jobs not only pay well, but are typically in high demand through unpredictable job markets or economic conditions.

What Is a Trade Job?

A trade job is a profession that doesn’t require a college degree, but rather a specialized skill or skill set obtained through a trade school or on-the-job experience and training. Popular trade jobs include construction managers, technicians, dental hygienists, mechanics, commercial pilots, and real estate brokers.

Pros of a Skilled Trade Job

A skilled trade job can be an attractive career path for a couple of reasons:

Educational Requirements

Unlike careers that require a college degree, which can cost hundreds of thousands of dollars and take four years to complete, trade jobs can often be obtained with less than two years of specialized education and at a fraction of the cost. Some trade jobs do not require any supplemental education at all, allowing trade workers to earn a living without being saddled by any student loan debt.

Recommended: Is the Average College Tuition Rising?

Job Security

Many trade jobs are in high demand due to the specialized knowledge and skilled physical labor needed to perform them. They are also potentially at lower risk of outsourcing or automation because they require a physically present human.

Cons of a Skilled Trade Job

On the other hand, there are negative connotations with some trade jobs, including:

Physically Demanding

Trade jobs that involve a lot of labor, like HVAC technicians, construction workers, and mechanics, can take a physical toll over the course of a long career.

Potentially Dangerous

Certain trade jobs have high injury and mortality rates, particularly ones that involve the operation of heavy machinery or working in hazardous environments.

25 Trade Jobs That Make the Most Money

Despite conventional wisdom that a bachelor’s or master’s degree is required to earn a good salary, trade jobs can pay very well. In fact, some of the highest-paying jobs in certain states are skilled trades.

Here are 25 of the highest-paying trade jobs in 2023, according to data from the U.S. Bureau of Labor Statistics:

1. Transportation, Storage, and Distribution Manager

• 2023 Median Annual Salary: $99,200

• Requirements: High school diploma or equivalent; 5+ years of work experience

• Job Description: Supervising and coordinating the transportation, storage, testing, and shipping of materials or products in accordance with government regulations.

• Duties:

◦ Supervising workers involved in receiving or shipping

◦ Inspecting warehouse and equipment safety

◦ Analyzing logistics and collaborating with other departments

2. Elevator/Escalator Installers & Repairer

• 2023 Median Annual Salary: $102,420

• Requirements: High school diploma or equivalent; apprenticeship; license (certain states)

• Job Description: Assemble, install, maintain, and fix elevators, escalators, chairlifts and other moving walkways and equipment. In addition to understanding the mechanics and components of each system, they are typically involved in the physical repair or replacement of parts, as well as testing equipment to ensure it meets specifications.

• Duties:

◦ Assembling elevators, escalators, and similar units

◦ Conducting preventative maintenance and inspections

◦ Maintaining service records

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3. Nuclear Power Reactor Operator

• 2023 Median Annual Salary: $120,350

• Requirements: High school diploma or equivalent; long-term on-the-job training; U.S. Nuclear Regulatory Commission license

• Job Description: Responsible for controlling and maintaining the systems that generate and distribute power to businesses, homes, or factories. This can include electricity generated through gas, nuclear, hydroelectric, wind, or solar energy.

• Duties:

◦ Monitoring voltage and electricity grids

◦ Adjusting control rods and electricity output

◦ Recording systems data

4. Radiation Therapist

• 2023 Median Annual Salary: $98,300

• Requirements: Associate degree (preferred) or certificate; state and national license

• Job Description: Administer radiation therapy to patients with cancer and other illnesses.

• Duties:

◦ Explain treatment plans to patients

◦ Calibrate and operate radiation machinery

◦ Monitor patient and keep records of treatment

5. Subway and Streetcar Operator

• 2023 Median Annual Salary: $84,270

• Requirements: High school diploma or equivalent; moderate on-the-job training; local transit training program (varies by location)

• Job Description: Operate subways and aboveground street cars, ensuring passengers safely move from one location to another.

• Duties:

◦ Operate train controls

◦ Make announcements and provide verbal directions to passengers

◦ Ensure overall passenger safety

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6. Nuclear Medicine Technologist

• 2023 Median Annual Salary: $92,500

• Requirements: Associate degree from an accredited nuclear medicine technology program; state license; long-term on-the-job training

• Job Description: Prepare and administer radioactive drugs for imaging or treatment, typically within hospitals, medical labs, and care centers.

• Duties:

◦ Explain medical procedures to patients

◦ Prep and administer drugs to patients

◦ Maintain and operate imaging equipment

7. Gas Plant Operator

• 2023 Median Annual Salary: $82,560

• Requirements: High school diploma or equivalent; long-term on-the-job training

• Job Description: Oversee the day-to-day operations of industrial power plants used by utilities, oil and gas, and manufacturing companies.

• Duties:

◦ Maintaining equipment and machinery

◦ Ensuring compliance with safety and regulatory standards

◦ Supervising employees and contractors at the plant

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8. Dental Hygienist

• 2023 Median Annual Salary: $87,530

• Education Requirements: Associate degree; state license

• Job Description: Examine patients for oral diseases and provide preventative care and education about oral hygiene.

• Duties:

◦ Taking dental x-rays

◦ Assisting dentists in providing teeth cleaning and plaque removal

◦ Educating patients about oral hygiene techniques

9. Sonography Technician

• 2023 Median Annual Salary: $81,350

• Requirements: Associate degree; state license

• Job Description: Operate sonographs that produce images of the inside of a body in order to assess and diagnose medical conditions.

• Duties:

◦ Prepping and administering sonograph exams

◦ Reviewing images and test results for quality

◦ Analyzing diagnostic information and providing summaries for physicians

10. Electrical Line Installer and Repairer

• 2023 Median Annual Salary: $85,420

• Requirements: High school diploma or equivalent; long-term on-the-job training

• Job Description: Install and repair electrical power systems and telecommunications systems.

• Duties:

◦ Installing, inspecting, and testing power lines, and equipment

◦ Identifying defective devices, transformers, and switches

◦ Stringing power lines between buildings and structures

11. Construction Manager

• 2023 Median Annual Salary: $104,900

• Requirements: High school diploma or equivalent; 5+ years of experience

• Job Description: Supervise and coordinate the activities of construction workers.

• Duties:

◦ Overseeing construction projects from start to finish

◦ Scheduling and supervising on-site contractors

◦ Preparing and monitoring budgets

12. Aircraft Technician

• 2023 Median Annual Salary: $75,400

• Requirements: Certificate of completion from a Part 147 FAA-approved aviation maintenance technician school

• Job Description: Repair and perform maintenance on aircraft and aircraft equipment.

• Duties:

◦ Diagnosing mechanical and electrical issues

◦ Repairing aircraft components

◦ Testing aircraft parts with diagnostic equipment

13. Boilermaker

• 2023 Median Annual Salary: $71,140

• Requirements: High school diploma or equivalent; apprenticeship

• Job Description: Assemble, maintain, and repair boilers, vats, or other containers used to hold liquids and gas.

• Duties:

◦ Reading blueprints to determine where to position boiler parts

◦ Assembling boiler tankers using welding machines

◦ Cleaning boiling vats and replacing broken valves and pipes

14. Wellhead Pumper

• 2023 Median Annual Salary: $71,830

• Requirements: High school diploma or equivalent; moderate on-the-job training

• Job Description: Operate power pumps and equipment used to extract oil or gas from an oil field well.

• Duties:

◦ Assembling pumps and attach hoses to wellheads

◦ Operating pumps and monitoring flow

◦ Transferring oil to storage tank or truck

15. Electronic Engineering Technologist

• 2023 Median Annual Salary: $72,800

• Requirements: Associate degree (preferred); certificate from accredited program

• Job Description: Assist electrical engineers with the design and development of communications equipment, computers, medical devices, and other electric-powered equipment.

• Duties:

◦ Designing and assembling electrical systems

◦ Observing onsite systems placement and performance

◦ Performing quality control and identify issues

16. Real Estate Agents

• 2023 Median Annual Salary: $54,300

• Requirements: High school diploma or equivalent; licensing exam

• Job Description: Help clients buy, sell, or rent their properties.

• Duties:

◦ Generating lists of properties for sale or rent and showing them to clients

◦ Advising clients on prices, mortgages, and market conditions

◦ Facilitating buyer/seller negotiations and final purchase or rental agreements

17. Respiratory Therapist

• 2023 Median Annual Salary: $77,960

• Requirements: Associate degree

• Job Description: Provide care for patients having trouble breathing.

• Duties:

◦ Examining patients and recording symptoms and conditions

◦ Consulting with physicians on treatment

◦ Performing diagnostic tests

18. Building Inspector

• 2023 Median Annual Salary: $67,700

• Requirements: High school diploma or equivalent

• Job Description: Review building plans to ensure construction meets local and national regulations and ordinances.

• Duties:

◦ Monitoring construction to ensure compliance

◦ Inspecting electrical and plumbing systems to ensure they are up to code

◦ Issuing violations for non-compliant work

19. Millwright

• 2023 Median Annual Salary: $62,980

• Requirements: High school diploma or equivalent

• Job Description: Install, dismantle, repair, reassemble, and move machinery in factories, power plants, and construction sites.

• Duties:

◦ Repair or replace malfunctioning equipment

◦ Clean, adjust, and calibrate new machinery

◦ Move machinery and equipment

20. Electrician

• 2023 Median Annual Salary: $61,590

• Requirements: High school diploma or equivalent; apprenticeship

• Job Description: Install, maintain, and repair electrical power, communications, lighting, and control systems.

• Duties:

◦ Identify and repair electrical problems

◦ Install wiring and equipment for electrical systems

◦ Ensure compliance with National Electrical Code

21. Plumber

• 2023 Median Annual Salary: $61,550

• Requirements: High school diploma or equivalent; apprenticeship

• Job Description: Install and repair gas and water piping systems in homes, factories, and businesses.

• Duties:

◦ Identify and repair plumbing problems

◦ Installing pipes and plumbing fixtures

◦ Clean drains, remove obstructions, and repair or replace broken pipes and fixtures

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22. Mining Roof Bolter

• 2023 Median Annual Salary: $66,660

• Requirements: High school diploma or equivalent; moderate on-the-job training

• Job Description: Operate machinery to install roof supporting bolts in underground mines.

• Duties:

◦ Drill bolt holes into roofs

◦ Perform safety checks on bolting equipments

◦ Extract loose rock from bolting support

23. Broadcast, Sound, and Video Technician

• 2023 Median Annual Salary: $54,160

• Requirements: High school diploma or equivalent; moderate on-the-job training

• Job Description: Operate and maintain electrical equipment used for television broadcast, radio programs, live concerts, and films.

• Duties:

◦ Setting up and operating equipment

◦ Monitoring and adjusting audio and visual quality

◦ Repairing equipment and fixing recording issues

24. HVACR Technician

• 2023 Median Annual Salary: $57,300

• Requirements: High school diploma or equivalent; 6 months to 2 years at a trade school or community college that offers heating, air conditioning, and registration programs.

• Job Description: Install and perform maintenance on heating, ventilation, cooling and registration systems for buildings and private residences.

• Duties:

◦ Installing, testing, and repairing HVACR systems

◦ Replacing or repairing defective parts

◦ Conducting overall system maintenance and performance improvements

25. Masonry Worker

• 2023 Median Annual Salary: $53,010

• Requirements: High school diploma or equivalent; apprenticeship or on-the-job training

• Job Description: Use brick, concrete, and natural and manmade stones to build structures, walls, or walkways.

• Duties:

◦ Design blueprints and calculate materials needed

◦ Break or resize materials into required shape

◦ Align, construct and polish finished structures

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The Takeaway

Many trade jobs can offer competitive pay and job security, without a significant upfront educational cost. Moreover, they provide an opportunity to help make a difference by solving real world problems.

Choosing the right career path is an important step toward achieving your financial goals. It’s just as important to practice smart financial habits, like setting spending limits, staying on top of your credit score, and establishing long-term goals.

See exactly how your money comes and goes at a glance.

FAQ

What skilled trades are in demand?

According to the Bureau of Labor Statistics, medical sonographers, respiratory therapists, industrial machinery mechanics, security and fire alarm installers are expected to experience the greatest job growth over the next ten years.

What are some of the best trades to learn that pay well?

Transportation managers, elevator installers, nuclear power reactor operators, and radiation therapists all earn a median salary above $80,000.

What are high paying trade jobs that require no degree?

HVAC technicians, real estate agents, subway operators, and plumbers all pay above-average salaries and require no formal degree.

Photo credit: iStock/dima_sidelnikov

SORL-Q224-1921116-V1

How to Calculate Gross Monthly Income From Biweekly Pay Stub

How to Calculate Monthly Pay From Biweekly Pay

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How Many Bi-Weeks in a Year

The Different Types of Payment Periods

Pros and Cons of Biweekly vs Semimonthly Pay

The Takeaway

FAQ

How do you convert biweekly pay to monthly income?

How do I calculate my gross monthly income?

How do you calculate gross income from a W-2 form?

HSA vs HRA: Main Differences and Which Is Right for You

Differences Between an HSA and HRA

What Is an HSA?

Pros of an HSA

Cons of an HSA

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What Is an HRA?

Pros of an HRA

Cons of an HRA

Which One Is Right for You?

The Takeaway

FAQ

Is it better to have an HRA or HSA?

Can I use both an HRA and HSA?

Can I have an HSA if my husband has an HRA?

What Is Earned Income vs Unearned Income?

What Is Unearned Income?

How Is Earned Income Different From Unearned Income?

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How Income Types Affect Taxes

Interest

Dividends

Capital Gains

Social Security

Alimony

Gambling Winnings

Debt Cancellation

How Earned vs. Unearned Income Affects Retirement Savings

The Takeaway

FAQ

Why do I need to know the difference between earned and unearned income?

What is an example of unearned income?

What Competitive Pay Is and How to Negotiate for It

Why Is Competitive Pay Important?

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What Determines Competitive Pay?

Location

Level of Education and Experience

Job Title and Industry

Market Demand

Competitor Salaries

Minimum vs. Competitive Wages: How They’re Different

Examples of Competitive-Paying Jobs

Cardiologists

Computer and Information Systems Managers

Lawyers

Financial Managers

Physicists

How to Negotiate for More Competitive Pay

1. Establish your priorities

2. Build Your Case

3. Know Your Pay Rate in the Market

The Takeaway

FAQ

Is competitive pay a red flag?

Does competitive pay come with good benefits?

25 High-Paying Trade Jobs in Demand

What Is a Trade Job?

Pros of a Skilled Trade Job

Educational Requirements

Job Security

Cons of a Skilled Trade Job

Physically Demanding

Potentially Dangerous

25 Trade Jobs That Make the Most Money

1. Transportation, Storage, and Distribution Manager

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