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ATM cards and debit cards may look very similar, but they actually have very distinct functions: ATM cards allow you to withdraw or transfer money from your bank account when you need cash. A debit card, however, delivers the same benefits but has more bells and whistles. For example, you can use debit cards to pay bills or earn rewards for your spending habits. So, although many think debit cards and ATM cards are one and the same, they actually work differently.

Understanding how each card works ensures you make the most of your banking services. That said, here’s everything you need to know when comparing ATM cards vs. debit cards, including:

•   What is an ATM card?

•   How do ATM cards work?

•   What is a debit card?

•   How do debit cards work?

•   When should you use an ATM card vs. a debit card?

What Is an ATM Card?

An ATM card allows you to withdraw cash from these machines up to certain ATM withdrawal limits and transfer money between bank accounts.

However, the card has limited functionality. You cannot use it to make in-person or online purchases like you can with a debit card.

Worth noting: Those who hold money market accounts (which are a kind of savings account blended with some checking account features) often have ATM cards.

How Do ATM Cards Work?

A bank links your ATM card to your account. When you use your ATM card at a machine, you enter your four-digit personal identification number (PIN) to access your account.

You can then use the ATM to view your account balance, withdraw cash, review recent transactions, and move money from one account to another. If you withdraw cash, you may have to pay a small ATM fee, depending on your bank and the machine you use.

What Is a Debit Card?

So, is a debit card the same as an ATM card? While they have similarities they are not the same.

Like an ATM card, your debit card links to your bank account and allows for cash withdrawal and checking account management. However, debit cards have higher withdrawal limits, meaning you can access more cash every day than with an ATM card. Generally, banks give debit cards to customers who have checking accounts.

A debit card is also a payment card. In other words, you can use your debit card at physical storefronts and shops to purchase goods and services. Likewise, your card enables you to make online purchases.

However, debit cards have purchase limits, meaning you can only conduct so many dollars’ worth of transactions per day. Usually, purchase limits range from a couple of hundred dollars to a few thousand dollars. Your limit depends on the bank or credit union that holds your account.

Recommended: What Is Cardless ATM Withdrawal?

How Do Debit Cards Work?

At an ATM, a debit card works identically to an ATM card: You enter your credit card PIN to manage and withdraw funds from your bank account. However, debit cards also allow you to forgo using cash. Instead, you can skip the ATM, go to the store, and use your debit card to make the purchase.

Your debit card will use your checking account to pay, making the transaction cashless. For security, you must use your PIN to complete a purchase.

By the same token, you can use a debit card online by entering your details when making a purchase on a website. This feature allows for electronic transactions where giving or receiving cash isn’t possible.

Pros and Cons of ATM Cards

Here is a summary of the advantages and disadvantages of ATM cards to help you understand ATM cards vs. debit cards:

Pros and Cons of Debit Cards

This list of pros and cons of debit cards can help you see the difference between a debit card vs. an ATM card:

Recommended: Guide to Using a Credit Card Like a Debit Card

When to Use an ATM Card Over a Debit Card

ATM cards only let account holders transfer money to and from accounts. For this reason, an ATM card might be more suitable for those who only have an ATM card linked to their bank account and need to move money. For example, an ATM card is a good option if you have a money market account and need to withdraw or deposit funds.

When to Use a Debit Card Over an ATM Card

On the other hand, if you want to make purchases online and pay bills, you will need to use a debit card since ATM cards don’t have these capabilities. Plus, if you want access to your bank account while traveling abroad, you’ll need to use your debit card (for purchases, you might decide to get an international credit card as well). This is because ATM cards can only be used in the United States.

Deciding which card to use will really depend on which type of card is linked to your bank account and what type of transaction you’re trying to complete.

Can I Have Both a Debit and ATM Card?

It’s possible to have both an ATM card and a debit card. Of course, the type of cards you have depend on your bank, account type, and needs. But, if you have both, ensure you know which card is linked to which account. This way, you can be mindful of potential fees and overdrafting your account.

The Takeaway

When you need to deposit or withdraw cash from your checking, savings, or money market account, an ATM card can help you do just that. However, with an ATM card, you can’t complete other banking transactions like making purchases or paying bills. A debit card gives you the ability to do all of it. But, the card you use will depend on your bank’s offerings as well as your financial needs.

If you’re in the market for a new debit card, you can open a bank account with SoFi and enjoy many perks. For instance, you’ll have access to the global Allpoint Network of no-fee ATMs. In addition, you’ll enjoy spending and saving in one convenient place, earning a competitive Annual Percentage Yield (APY), and paying no account fees. All this can help you manage your money more easily and maybe even grow your funds faster.

FAQ

Do you need an ATM card?

Not necessarily. Debit cards also give you access to ATMs to withdraw or deposit money.

Are debit cards more useful than ATM cards?

Yes, debit cards have more functionality than ATM cards. For example, you can make purchases and conduct internet banking with debit cards. ATM cards don’t allow you to do that.

What are the main differences between an ATM card and a debit card?

The primary difference between ATM and debit cards is that you can only use the ATM one to transfer money from your bank account via ATM or electronic transfer. A debit card does the same, but you can also make purchases in-store or online and use it for other internet banking services.

Photo credit: iStock/Nastasic

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer 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, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% 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 Bank shall, in its sole discretion, assess each account holder’s 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 a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% 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 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 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 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 Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% 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 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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.

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

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Nothing is as certain as tax season. Like it or not, it comes every year, and taxpayers need to report and pay their dues on all taxable income. But did you know that some income is non-taxable?

That’s right: In some rare cases, Uncle Sam won’t be asking for his fair share. But you may wonder how to know the difference and how you can correctly file your taxes. This guide can help you understand this important distinction.

Read on to learn:

•   What is taxable income vs. non-taxable income?

•   What are some examples of taxable income?

•   What are some examples of non-taxable income?

Taxable and Non-Taxable Income Explained

The difference between taxable and non-taxable income is pretty straightforward:

•   Taxable income is subject to taxes. That means you must report it to the IRS on your tax return and pay taxes on it based on your filing status and tax bracket. And remember: Income isn’t just money that you earn. Income can come in the form of money, property, or services rendered.

•   Non-taxable income is not subject to taxes. Though you may have pocketed money throughout the year (perhaps child support), you do not need to pay taxes on it. However, you may still need to report it on your tax return.

Understanding the differences between these two terms is easy. It’s understanding just what is considered taxable income vs. non-taxable income that can be more challenging without the help of an accountant.

Understanding your taxes is an important aspect of managing your finances. Incorrectly accounting for income could leave you owing the government money plus penalties, so read on to learn more.

What Is Taxable Income?

Taxable income is money, property, or services that you received that the IRS requires you to pay taxes on. Common types of taxable income include wages, self-employment earnings, and stock dividends.

Examples of Taxable Income

Wages are an easy example of taxable income, but the list of what kind of earnings are taxed is much more extensive. Below are some examples of taxable income to keep in mind when filing, but note that this list is not exhaustive, meaning you should research each type of income you earned throughout the year to determine if you owe taxes.

•   Salary, wages, tips, bonuses, and self-employment income: First and foremost, the income you make for doing your job counts as taxable income. That includes both salaried and hourly workers who receive a W-2. If you earn tips — even cash tips — you’ve got to report those, too. Bonuses are also taxable, as is any income you make as a self-employed individual.

Self-employed taxpayers who receive 1099 forms have to pay more in taxes than salaried employees. That’s because they also owe self-employment taxes to cover items like Social Security and Medicare contributions.

•   Investment income: If you rent out property (like a house or a vehicle), you must report that income to the IRS and pay taxes on it. If you have investments that pay interest and unqualified dividends, those are taxable as well.

•   Fringe benefits: The IRS is careful to spell out that income isn’t just money you earn. For example, if your employer pays for an off-site gym membership or sends you a Christmas gift every year, these are considered fringe benefits — and you’ve got to report and pay taxes on the monetary value of those benefits. Not all fringe benefits are taxable; if you’re unsure whether you need to pay taxes on something, you can check out the IRS’s resource on fringe benefits or work with an accountant.

•   Some retirement income: If you contributed to a traditional IRA or traditional 401(k) plan, those contributions were pre-tax. When you start withdrawing those funds, you unfortunately have to pay taxes on that money.

•   Income from the sale of assets: When you sell something — whether it’s your car, a stock, or even an old couch — you generally have to report the capital gain from that sale. There are exceptions, including the big tax break you may receive when you sell your house (more on that below).

•   Royalties: If you earn royalties from copyrights, patents, or oil, gas, and mineral properties, you’ll have to pay taxes on those royalties.

•   Alimony, sometimes: Tax law on alimony payments has changed. If you got a divorce before 2019 and have not altered the agreement to expressly state that alimony isn’t considered income, then you’ll pay taxes on it.

•   Unemployment compensation: Yes, even if you’re out of work and receiving unemployment benefits, you’ve got to pay taxes.

Remember, this list is not all-encompassing. The IRS has guidance on everything from cash for babysitting to bartering to lottery winnings. If you’re unsure what income to report, you may benefit from working with an accountant. As you prepare for tax season, these professionals can help you sort out what is taxable vs. non-taxable income so you can file correctly.

What Is Non-Taxable Income?

Non-taxable income is money, property, or services that you received that the IRS does not require you to pay taxes on, though you may still need to report it on your tax return. Common types of non-taxable income include child support payments, cash rebates, and welfare payments.

Recommended: What Is Unearned Income?

Examples of Non-Taxable Income

As with taxable income, the list of non-taxable income is extensive (and has a lot of fine print). We’ve compiled some examples of non-taxable income below, but it’s a good idea to work with an accountant if you’re unsure how to report your income on your tax return. Again, this is not a complete list.

•   Child support payments: Child support payments are not taxable income — and there’s no fine print to worry about with this money, either.

•   Welfare: Welfare benefits are not taxable. Like child support payments, guidance is very straightforward on this.

•   Alimony, sometimes: If you receive alimony for a divorce in 2019 or later, you do not pay taxes on that income. If you got a divorce before 2019 and modified the agreement after 2018, you may not have to pay taxes on alimony.

•   The sale of a house, sometimes: If you’re quickly flipping houses for a profit, those capital gains are taxable. However, the government has provided a sizable tax break for homeowners. If you sold your home and lived in it for at least two of the last five years, you don’t have to pay taxes on the first $250,000 in profit ($500,000 if married, filing jointly). There’s more fine print about this tax break, so it’s a good idea to reference IRS materials if you have large capital gains from the sale of a house.

•   Some fringe benefits: In general, fringe benefits are taxable, but the IRS does have a list of exclusions, like adoption assistance and dependent care assistance (up to certain limits). For full details, review the IRS’s detailed breakdown of fringe benefits and taxation; the link is provided above.

•   Some retirement income: While you’ll pay taxes when withdrawing from your traditional IRA and 401(k) in retirement, you won’t have to worry about taxes when drawing from a Roth IRA and Roth 401(k). Why? Contributions are post-tax, so you’ve already paid taxes on the funds.

•   Gifts and inheritances: You usually don’t have to pay taxes on (property) gifts you receive; the IRS doesn’t come for Santa’s presents!). What’s more, you likely don’t have to pay taxes on inheritances. Instead, the deceased’s estate pays taxes on the money before you receive the inheritance.

•   Life insurance payout: If you receive proceeds as the recipient of a life insurance policy when the policyholder dies, that money is not taxable. But if you cash in a life insurance policy, some or all of it is taxable.

The IRS has a more comprehensive list to review before filing.

Recommended: Different Types of Taxes

The Takeaway

It’s possible to earn both taxable and non-taxable income. While the most common source of income — your paycheck — is taxable, you might receive some income for which you pay no taxes, like child support or capital gains on the sale of your home. It’s wise to make sure you fully understand how money you receive is categorized, so that you can file your taxes correctly. This could be accomplished by working with a tax professional, using tax software, or doing your own research.

Looking for a way to make more money from your cash? Open a SoFi bank account, which boasts a competitive annual percentage yield (APY) and charges no account fees, both of which can help your savings grow. You can also spend and save in one convenient place and have savings tools like Vaults and Roundups at your fingertips.

FAQ

What are the pros and cons of taxable income?

The largest pro of taxable income is that it inherently means you’re making money. Whether it’s from a salary or an investment, having income that’s taxable implies you are receiving the money you need to survive. And, of course, the con of taxable income is that not all of the income is yours — you’ll have to pay taxes on it, and generally, the more you earn, the more you’ll owe.

What are the pros and cons of non-taxable income?

The biggest pro of non-taxable income is that you don’t have to pay taxes on it. Every dollar you earn is yours to keep. Non-taxable income can have some cons, however, depending on the source. For example, you may receive non-taxable income as a life insurance payout or inheritance, which implies you’ve lost someone special in your life. Non-taxable income can also be more confusing to navigate on your tax return and could necessitate the help of a professional accountant.

How do you calculate taxable and non-taxable income?

The IRS has a comprehensive guide to taxable vs. non-taxable income. In assessing each source of your income, you can review IRS guidance for how to report it and whether it’s taxable or not. If you’re feeling overwhelmed, you may benefit from using tax preparation software or a professional tax preparer.

Photo credit: iStock/atakan

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.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer 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, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% 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 Bank shall, in its sole discretion, assess each account holder’s 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 a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% 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 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 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 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 Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% 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 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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.

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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

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