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Both TFSAs and RRSPs are accounts that provide Canadian consumers with a chance to save while enjoying investment earnings and unique tax benefits. While a TFSA acts as a more general savings account, an RRSP is used for retirement savings.

Saving is never a bad idea, so here you can learn the difference between these accounts and how they can play a role in securing your financial future.

Keep reading for a more detailed breakdown of a TFSA vs. RRSP so you can make the right financial move for your needs.

What Is the TFSA?

A Tax-Free Savings Account (TFSA) is a type of registered tax-advantaged savings account to help Canadians earn money on their savings — tax-free. TFSA accounts were created in 2009 by the Canadian government to encourage eligible citizens to contribute to this type of savings account.

Essentially, a TFSA holds qualified investments that can generate capital gains, interest, and dividends, and they’re tax-free. These accounts can be used to build an emergency fund, to save for a down payment on a home, or even to finance a dream vacation.

A TFSA can contain the following types of investments:

•   Cash

•   Stocks

•   Bonds

•   Mutual funds

It’s possible to withdraw the contributions and earnings generated from dividends, interest, and capital gains without having to pay any taxes. Accountholders don’t even have to report withdrawals as income when it’s time to file taxes.

There is a limit to how much someone can contribute to a TFSA on an annual basis. This limit is referred to as a contribution limit, and every year the Canadian government determines what the contribution limit for that year is. If someone doesn’t meet the contribution limit one year, their remaining allowed contributions can be made up for in following years.

To contribute to a TFSA, an individual must be at least 18 years of age and be a Canadian resident with a valid Social Insurance Number (SIN).

What Is the RRSP?

A Registered Retirement Savings Plan (RRSP) is, as the name indicates, a type of savings plan specifically designed to help boost retirement savings. To obtain one, a Canadian citizen must register with the Canadian federal government for this financial product and can then start saving.

When someone contributes to an RRSP, their contributions are considered to be tax-advantaged. What this means: The funds they contribute to their RRSP are exempt from being taxed the year they make the contribution (which can reduce the total amount of taxes they need to pay for that year). On top of that, the investment income these contributions generate will grow tax-deferred. This means the account holder won’t pay any taxes on the earnings until they withdraw them.

Unlike a TFSA, there isn’t a minimum age requirement to open and contribute to an RRSP. That being said, certain financial institutions may require their customers to be the age of majority in order to contribute. It’s possible to contribute to an RRSP until the year the account holder turns 71 as long as they are a Canadian resident, earned an income, and filed a tax return.

Keep reading for a TFSA vs. RRSP comparison.

Similarities Between a TFSA and an RRSP

How does a TFSA vs. RRSP compare? There are a few similarities between TFSAs and RRSPs that are worth highlighting. Here are the main ways in which they are the same:

•   Only Canadians citizens can contribute

•   Contributions can help reach savings goals

•   Investments can be held in each account type

•   Both accounts offer tax advantages.

Differences Between a TFSA and RRSP

Next, let’s answer this question: What is the difference between an RRSP and a TFSA? Despite the fact that both an RRSP and a TFSA share similar goals (saving money and earning interest on it) and advantages (tax benefits), they have some key differences to be aware of.

•   Intended use. RRSPs are for retirement savings whereas TFSAs can be used to save for any purpose.

•   Age eligibility. To contribute to a TFSA one must be 18 years old, but there isn’t an age requirement to open an RRSP.

•   Contribution limit. The limits are usually set annually and are different for TFSAs and RRSPs. The contribution limit or an RRSP is the lesser of either 18% of earned income reported on an individual’s tax return for the previous year or the contribution limit, which is $32,490 Canadian for 2025 and $33,810 Canadian for 2026. The limit for a TFSA is $7,000 Canadian for 2025 and 2026.

•   Taxation on withdrawals. While RRSP withdrawals are taxable (but subject to certain exceptions), TFSA withdrawals can be made at any time tax-free.

•   Taxation on contributions. Contributions made to a TFSA aren’t tax-deductible, but RRSP contributions are.

•   Plan maturity. An RRSP matures at the end of the calendar year that the account holder turns 71. TFSAs don’t have age limits for account maturity.

•   Spousal contributions. There is no form of spousal TFSA available, but someone can contribute to a spousal RRSP.

How Do I Choose Between a TFSA and RRSP?

Choosing between a TFSA and an RRSP depends on someone’s unique savings goals and tax preferences. That being said, if someone’s main goal is saving for retirement, they’ll likely find that an RRSP is the right fit for them. When someone contributes to an RRSP, they can defer paying taxes during their peak earning years. Once they retire and make withdrawals (which they will need to pay taxes on), they will ideally have a lower income (and be in a lower tax bracket) and smaller tax liabilities at that point in their life.

If someone wants to be able to use their savings for a variety of different purposes (perhaps including a medium-term goal like the amount needed for a down payment on a home), they may find that a TFSA offers them more flexibility.
That said, there’s no reason TFSA savings can’t be used for retirement later on. Contributing to a TFSA is a great option for someone who has already maxed out their RRSP contributions for the year, but who wants to continue saving and enjoying tax benefits.

Recommended: What Tax Bracket Do I Fall Under?

Can I Have Both a TFSA and RRSP?

It is indeed possible to have both an RRSP and TFSA and to contribute to them at the same time. Putting money into both of these financial vehicles can be a great way to save. There are no downsides associated with contributing to both an RRSP and TFSA at the same time if a person can afford to do so.

Can I Have Multiple RRSP and TFSA Accounts?

Yes, it’s possible to have more than one TFSA and RRSP open at the same time, but there’s no real benefit here. The same contribution limits apply.

That means that opening more than one version of the same account or plan only leads to having more accounts to manage and incurring more administration and management fees. Just as you don’t want to pay fees on your checking account and other bank accounts, you probably don’t want to burn through cash on fees here.

Should I Prioritize One Over the Other?

Which type of account someone should prioritize depends on their savings goals. Their preferences regarding the unique tax advantages of each account may also come into play. That being said, if someone is focused on saving for retirement, they’ll likely want to make sure they max out their RRSP contributions first.

The Takeaway

Both RRSP and TFSA accounts are great ways for Canadian citizens to save for financial goals like retiring or financing a wedding. Each account has unique advantages and contribution limits. While an RRSP account is designed to help with stashing away cash for retirement, a TFSA account can be used to save for any type of financial need. Whether you choose one or both of these products, you’ll be on a path towards saving and helping to secure your financial future.

FAQ

Is it better to invest in TFSA or RRSP?

When it comes to TFSA vs. RRSP, there’s no right answer to whether investing in one is better than the other. Someone focused on saving for retirement may want to prioritize an RRSP, while someone who wants to save for other expenses (like a home or wedding) may find a TFSA more appealing.

Should I max out RRSP or TFSA first?

If someone is focused on saving for retirement, they may want to max out their RRSP first. That being said, this is a personal decision that depends on unique financial goals and tax preferences.

When should you contribute to RRSP vs TFSA?

Typically, the contribution deadline for RRSPs is around March 1st. A Canadian citizen can put funds in a TFSA at any point in a calendar year, and if they don’t max out their account, they will usually be able to contribute the remaining amount in the future.

About the author

Jacqueline DeMarco

Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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 every 31 calendar days.

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 the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, 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 the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit 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, Wise, 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 Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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

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

SOBK-Q224-1890414-V1
CN-Q425-3236452-122

If you have a flexible spending account, an FSA debit card allows you access these pre-tax dollars you’ve set aside. With an FSA debit card, you can pay for qualifying medical purchases without having to file a reimbursement claim through your employer.

In other words, an FSA debit card can make your healthcare spending that much easier. But it’s important to understand the full story on how these cards work to make sure you get the most out of one.

This guide will coach you through that, including:

•   What is an FSA debit card?

•   How can you get an FSA debit card?

•   How do you use an FSA debit card?

•   What are the pros and cons of an FSA debit card?

•   When should you use your regular debit card instead?

Read on and you’ll learn the best FSA debit card practice so you can benefit from the money in your flexible spending account.

What Is an FSA Debit Card?

An FSA debit card will typically come with your flexible spending account, which is a tax-advantaged account offered through an employer’s benefit package. The funds in your FSA can be used to help cover out-of-pocket medical expenses.

For 2026, once you’re enrolled in an FSA account, you can contribute up to $3,400 (an increase of $100 from the 2025 limit). If you’re married and your spouse has a plan through their employer, your spouse can also contribute up to $3,400 to that plan. This would allow you to jointly contribute up to $6,800 for your household.

An FSA debit card looks and performs like a bank debit card, but it is connected to your flexible savings account, not your checking. You can only use it to pay for qualified medical and dental expenses not covered by your health insurance.

Worth noting: You may wonder what an HSA vs. FSA is. Though they sound alike, a flexible spending account works differently than a health savings account (HSA). You can only get an FSA through an employer; freelancers and self-employed individuals are not eligible. Also, HSAs are only available to those who are enrolled in a high deductible health plan, or HDHP.

Recommended: Benefits of Health Savings Accounts

Ways That You Can Use an FSA Debit Card

There are quite a few FSA rules and regulations dictating what you can spend your untaxed funds on.

The list of FSA-eligible expenses is extensive, covering everything from co-pays to bandages. Here are just some of the things you may be able to use your FSA debit card for:

•   Medical copays and deductibles

•   Prescription medications

•   Approved over-the-counter drugs, such as allergy, cough, and pain medications

•   Testing kits, including those for COVID-19 and cholesterol

•   Crutches, canes, and walkers

•   Dental expenses, including crowns and dentures

•   Vision expenses, including glasses and contact lenses

•   Fertility treatments

•   Hospital and ambulance fees

•   Lab fees

•   Acupuncture, chiropractic treatments, and massage therapy.

Ways That You Cannot Use an FSA Debit Card

An FSA debit card can be a convenient way to pay for medical fees, prescriptions, and other health-related items your health insurance doesn’t cover. But not all wellness-related expenses are covered. Here are some things you cannot use an FSA card for, including:

•   Groceries. Although diet is an important part of a healthy lifestyle, your FSA card won’t pay for, say, organic beef and green beans.

•   Cosmetic procedures. Expenses for electrolysis, face lifts, hair transplants, and the like are typically not covered.

•   Dining out. You can’t use an FSA debit card at a restaurant, even if it’s a vegan or “health food” eatery

•   Vitamins and nutritional supplements, unless you can prove they were prescribed by a physician

•   Getting cash. Unlike with a debit card, you will not be able to use an FSA card to withdraw cash funds from your account.

Recommended: Guide to Practicing Financial Self-Care

Process of Getting an FSA Debit Card

The steps to getting an FSA debit card are pretty straightforward:

•   Sign up for an FSA account offered by your employer. There is typically an “open season,” a window of time during the year when you are eligible to enroll.

•   Make a contribution or set up a contribution commitment for the account. These accounts are typically pre-funded, by the way, which is a nice perk. What that means: If you enroll in an FSA on January 1st and pledge to contribute $2,400 over the year, paying $200 a month, the $2,400 becomes available for you to use right away.

•   Wait for your FSA debit card. Once you enroll and contribute to your FSA account, the debit will be sent to your address. This can take 7 to 10 business days.

Recommended: HSA vs. HRA: What’s the Difference?

Pros and Cons of FSA Debit Cards

If you are someone who anticipates having frequent out-of-pocket healthcare expenses, a flexible spending account and an FSA debit card can be convenient. It can be a good way for you to save pre-tax dollars and put them toward those expenditures.

However, it’s worthwhile to consider both the upsides and downsides to having an FSA debit card:

Pros of having an FSA account and debit card

•   Easy access to tax-free funds to spend on qualifying medical expenses. You can use the FSA card like a debit card to make payments.

•   Online shopping. You can use your FSA debit card for online shopping, as long as it’s with a vendor that accepts the FSA card. Amazon, CVS, and other online shopping sites identify which items are FSA eligible, making shopping even simpler.

•   Avoiding pesky paperwork. Using the FSA debit card means you don’t have to keep track of receipts and file a reimbursement report with your employer.

•   No cash out-of-pocket. With an FSA debit card, you’ll avoid a trip to the ATM or having to use your personal debit card, and you won’t have to wait for a reimbursement. What’s more, you can avoid using a credit card for some health-related expenses, thereby possibly avoiding hefty interest charges, too.

Cons of having an FSA debit card

Here are some potential downsides to using an FSA debit card:

•   Contributions are use-it-or-lose-it. In many cases, if you don’t use your FSA funds by the end of the year, you will forfeit the remaining balance. Some employers may allow for a grace period to spend the money or for certain amounts to be rolled over. But this aspect is probably the biggest drawback of having an FSA account and debit card.

•   If you leave, the money stays. Usually, if you quit or change jobs, the money you contributed to your FSA stays with your employer.

•   No reward perks. You won’t get any bonus miles or other award points from swiping an FSA debit card.

Recommended: Beginner’s Guide to Health Insurance

FSA Debit Card vs Traditional Debit Card

An FSA debit card and personal debit card from your bank or credit union share a number of features. Both provide access to funds for in-person purchases, and you should have no issues using a debit card online nor an FSA debit card.

But there are some distinct differences between an FSA debit card and traditional debit card, including:

Recommended: What Is a Debit Card?

The Takeaway

Using an FSA debit card can be a hassle-free way to pay for qualifying, out-of-pocket medical expenses. These cards function much like a traditional debit card, helping you pay for health-related items with the pre-tax dollars that are in your account. However, if you have one of these cards, it’s wise to know the pros and cons so you can use it most effectively.

3 Money Tips

1.    If you’re saving for a short-term goal — whether it’s a vacation, a wedding, or the down payment on a house — consider opening a high-yield savings account. The higher APY that you’ll earn will help your money grow faster, but the funds stay liquid, so they are easy to access when you reach your goal.

2.    If you’re creating a budget, try the 50/30/20 budget rule. Allocate 50% of your after-tax income to the “needs” of life, like living expenses and debt. Spend 30% on wants, and then save the remaining 20% towards saving for your long-term goals.

3.    When you overdraft your checking account, you’ll likely pay a non-sufficient fund fee of, say, $35. Look into linking a savings account to your checking account as a backup to avoid that, or shop around for a bank that doesn’t charge you for overdrafting.

FAQ

Can you be denied an FSA debit card?

If you qualify for an FSA account through your employer and the account comes with an FSA debit card, there’s little chance you would be denied one, unless you have missed the deadline for the enrollment period.

Is it good to have an FSA debit card and a traditional debit card?

It’s wise to have an FSA debit card and a traditional debit card. You can only use an FSA debit card to pay for qualifying medical expenses at vendors who will accept it.. You will likely need a standard debit card to pay for groceries, clothes, and life’s other expenses.

Can I withdraw cash with an FSA debit card?

Unlike with a traditional debit card, you cannot withdraw cash with an FSA debit card.

Does a bank provide an FSA debit card?

An FSA debit card is not provided by a bank, but rather through a vetted healthcare FSA vendor chosen by your employer.

Photo credit: iStock/praetorianphoto

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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 every 31 calendar days.

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 the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, 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 the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit 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, Wise, 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 Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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

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.

SOBK1222044
CN-Q425-3236452-109

Tax credits and tax deductions work differently, with deductions lowering your taxable income and credits actually reducing the taxes you owe.

To be a little more specific, deductions can decrease the amount of income you have to pay taxes on, which can lower your final bill. Tax credits are a dollar-for-dollar reduction in what you owe — and might even get you a bigger tax refund.

It’s possible you may be able to claim both deductions and credits. Read on to understand more about how both options work.

What Are Tax Credits?

Tax credits represent a dollar-for-dollar reduction in your overall tax burden. They directly lower the tax amount you owe to Uncle Sam.

For example, if you owe $1,500 in taxes but qualify for a $500 tax credit, your total tax bill will decrease by $500, meaning you’ll only have to pay $1,000. That can leave more money in your bank account.

How Do Tax Credits Work?

When filing your taxes, you can use IRS resources, tax software, or a certified accountant to research tax credits for which you may be eligible. If it’s your first time filing taxes, these resources can be especially helpful.

Even if you don’t owe anything in taxes, it’s worth looking into tax credits. Why? Because some tax credits are refundable, meaning the government might owe you money:

•   Refundable tax credits allow your tax liability to go below zero. For example, if you owe $100 in taxes but receive a $500 refundable tax credit, the government will actually owe you $400.

•   Nonrefundable tax credits do not work that way, unfortunately. If you qualify for a nonrefundable tax credit, the best it can do is eliminate your tax liability (meaning you owe nothing). But even if the credit is large enough to wipe out what you owe and there’s still money left over, you don’t get to stash that money in, say, your savings account.

Tax credits are not for everyone. Each credit has specific requirements to qualify.

And if you’re wondering what happens if you miss the tax deadline, tax credits would still apply for the year that you’re filing your taxes.

Common Tax Credits

Your tax software or accountant should know the full list of tax credits to look out for, and the IRS website features the whole list. (You can also learn important information from an online tax help center.)

Before diving into your taxes, however, it’s a good idea to note some of the most common tax credits for which you may qualify:

•   Earned Income Tax Credit: Commonly called by its initials (EITC), this refundable tax credit is for low- to moderate-income workers. The amount you might qualify for and your eligibility can vary depending on whether you have dependents and/or have a disability.

•   American Opportunity Tax Credit: This education tax credit is partially refundable. Students (or parents claiming a student as a dependent) can claim this tax credit for the first four years of higher education. It’s $2,500 per eligible student, but once your tax bill hits zero, you can earn 40% of whatever remains (up to $1,000) as a tax refund.

•   Child Tax Credit: Even if a child isn’t enrolled in higher education, parents have access to a handy tax credit. The Child Tax Credit is a refundable tax credit for parents (with dependent children) who meet income requirements.

•   Child and Dependent Care Credit: Parents have access to yet another potential tax credit, this time for those who pay for babysitters or daycare. The credit amount depends on such factors as your income, child care costs, and number of children requiring care.

You can use tools on the IRS website to discover if you qualify for these and other tax credits.

What Are Tax Deductions?

Tax deductions are another way to reduce your tax burden, but they work differently. While a tax credit discounts your final tax bill after all the calculations, a tax deduction reduces the amount of income eligible for taxes.

The more deductions you have, the less money you have to pay taxes on. This can result in a lower overall tax bill, but it cannot result in a tax refund.

How Do Tax Deductions Work?

Here’s an example to understand how tax deductions reduce what you owe:

If you made $110,000 in 2025 you would owe 24% in federal taxes based on your marginal tax bracket. But if you have $20,000 in tax deductions, you would lower your taxable income to $90,000, which puts you at both a lower base to calculate taxes ($90K vs. $110K), and you would be in the 22% tax bracket, which is capped at $103,350 for single filers in 2025.

As you can see, when calculating how much a tax deduction will save you, it’s important to know which tax bracket you’re in — your tax bracket represents the percentage at which your income could be taxed. In general, the more money you make, the higher the tax rate.

Common Tax Deductions

Nearly every tax filer is eligible for the standard deduction. Without inputting any information accounting for business expenses, medical costs, charitable contributions, student loan interest payments, and other eligible deductions, you can simply subtract the standard deduction amount from your taxable income.

For the 2024 tax year (which will be filed in April of 2025), the standard deduction is:

For the 2025 tax year (which will be filed in April of 2026), the standard deduction is:

•  $15,750 for single taxpayers (and married, filing separately)

•  $31,500 for married taxpayers filing jointly

•  $23,625 for heads of household

For the 2026 tax year (which will be filed in April of 2027), the standard deduction is:

•  $16,100 for single taxpayers (and married, filing separately)

•  $32,200 for married taxpayers filing jointly

•  $24,150 for heads of household

Many people choose to take the standard deduction, but if you qualify for various deductions that would amount to more than the standard deduction, it’s worth itemizing your deductions.

Working with a personal accountant or tax preparation software may be your best bet for determining which deductions you qualify for. Here are some of the most common types of deductions:

•   State and local taxes

•   Business expenses (if you are self-employed)

•   Mortgage interest

•   Property taxes

•   Qualifying medical expenses

•   Charitable contributions

•   Student loan interest.

You can explore even more tax deductions on the IRS website.

If you run your own business, it’s wise to look into common tax deductions for freelancers.

Pros and Cons of Tax Credits

Tax credits are largely a good thing, as they reduce your overall tax burden. But they also have some drawbacks. Here’s a closer look at the pros and cons:

Pros

First, consider these upsides of tax credits:

•   Reduces your tax bill, which could leave more money in your checking account

•   May result in a refund

•   Often designed for moderate- to low-income families.

Cons

Next, the potential downsides of tax credits:

•   Strict eligibility requirements

•   Can delay your refund when you claim them.

Recommended: How to File for a Tax Extension

Pros and Cons of Tax Deductions

Similarly, tax deductions serve a useful purpose in filing taxes, but they also have their own set of pros and cons.

Pros

Here are the potential advantages of tax deductions:

•   Reduces your tax bill

•   The standard deduction is easy to claim

•   Useful for self-employed individuals with business expenses.

Cons

Also be aware of the possible downsides:

•   Lots of paperwork (itemized deductions)

•   Weighing the standard vs. itemized deduction can be complicated

•   Won’t generate a refund.

Tax Credits vs Deductions: What’s the Difference?

Let’s break down the differences between tax credits and tax deductions in chart form:

While nearly everyone can qualify for the standard deduction, tax credits can actually be the more effective way to lower your tax bill. But the best part? You can utilize both tax strategies when you file.

Tips for Using Tax Credits and Deductions

Preparing to file your taxes? Here are some tips for using tax credits and deductions:

•   Research eligibility requirements online: The IRS website has useful tools to help determine if you qualify for specific tax credits and deductions.

•   Gather all your paperwork: Taxes require a lot of forms, documents, and receipts. When claiming credits and deductions, it’s important to have the paperwork (whether printed or digital) to prove your eligibility.

•   Consider using tax software or an accountant: Taxes can be overwhelming. If your situation is complex (maybe you are confused by, say, your payroll deductions), you may benefit from tax software (TurboTax, H&R Block, and TaxSlayer are popular brands) or a tax professional.

One last note: If you do wind up with a tax refund, you might put it in your emergency fund or, if you don’t have one yet, start one. Experts say to aim to have three to six months’ worth of living expenses set aside in case of job loss or unexpected major bills.

The Takeaway

Tax credits and tax deductions can both lower your overall tax burden. Tax credits reduce what you owe dollar-for-dollar, while tax deductions reduce the amount of income you owe taxes on. If you’re eligible, you can take advantage of both tax strategies when you file.

While you are getting your taxes organized, don’t overlook the value of a banking partner that makes it easy to manage your finances.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Between a tax deduction and tax credit, which lowers your bill more?

A tax credit lowers your tax bill dollar-for-dollar and may even result in a refund. A tax deduction only reduces the amount of money you owe taxes on. For example, a $1,000 tax credit takes $1,000 off your tax bill. A $1,000 tax deduction reduces your taxable income by $1,000; the actual reduction in tax depends on your tax bracket.

Do more people utilize tax credits or tax deductions?

Most tax filers can claim the standard deduction, but not everyone qualifies for tax credits. So it is more likely that you’ll use a tax deduction on your tax return than a tax credit. That said, it is possible to use both credits and deductions to lower your tax bill.

Can I claim both deductions and tax credits?

Yes, you can claim both tax deductions and tax credits on your tax return, as long as you qualify for the deductions and credits you claim.

Photo credit: iStock/PeopleImages

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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 every 31 calendar days.

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 the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, 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 the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit 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, Wise, 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 Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
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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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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

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