What to Do If You Don’t Receive Important Tax Documents

It’s getting to be that time of year again: tax time. But what happens if you don’t have all your tax information ready to go by April?

While keeping track of everything can be a headache, the good news is, most of your tax information is probably recoverable, even if it doesn’t show up on time. Here’s what to do.

What Paperwork Do You Need to Keep for Taxes?

There are many types of IRS forms that contain the information necessary to file a tax return, whether you’re doing so through IRS Free File or with tax software, a professional preparer, or an accountant.

And whether you’re filing taxes for the first time or not, the specific forms you’ll need will depend on your personal financial and demographic circumstances.

Income Statements

If you’re an employee of a company, your employer will need to supply a W-2 form, which shows your income, the amount that was already withheld for taxes, and any “elective deferrals” made to a tax-deferred 401(k) or similar employer plan.

Employers are to send W-2s by Jan. 31.

If you’re self-employed — an independent contractor, sole proprietor, member of a business partnership, freelancer, or gig worker — you’ll receive a Form 1099 from each client that paid you $600 or more. It’s specifically a 1099-NEC, which replaced what used to be recorded on Form 1099-MISC, Box 7.

The many types of 1099 forms serve to report income from nonemployment-related sources like freelance work, passive income streams, bank interest, or investment dividends. Which means you might get a 1099 if you’re an employee who has an investment account.

The due date for furnishing Forms 1099-NEC, 1099-G, 1099-H, most 1099-DIVs, and some others to recipients is Jan. 31. For Forms 1099-B, 1099-S, and 1099-MISC, the due date is Feb.15.

Interest and Health Care Statements

Other common statements include Form 1098, which comes in several variations and lists expenses that may be tax deductible. Two common ones:

•   Mortgage interest, if you itemize deductions

•   Student loan interest

The IRS requires most 1098s to be sent to taxpayers by Jan. 31 each year.

Form 1095 includes information pertaining to health care coverage. You may get a 1095-A if you had a health care plan from the Marketplace, a 1095-B if you or someone in your household had “minimum essential coverage,” or a 1095-C if you received employer-provided health insurance.

The annual deadline for providers to issue Form 1095s is Jan. 31.

Quick Money Tip:Typically, checking accounts don’t earn interest. However, some accounts will pay you a bit and help your money grow. An online bank account is more likely than brick-and-mortar to offer you the best rates.

Expense Receipts

If you’re trying to lower your taxable income come tax time (and who isn’t), start by gathering the records you kept in a folder or from a money tracker (or excavating that not-so-carefully kept cache of receipts and bills).

To deduct medical expenses, you’ll need to itemize your deductions. Qualified deductions include:

•   Premiums for medical, dental, vision, long-term care, Medicare Part B, and Medicare Part D insurance that you were not reimbursed for and that were not paid with pretax money.

•   Copays for medical, dental, or vision care.

•   The cost of prescriptions, eyeglasses, contact lenses, lactation aids, medical aids, and medical exam or test fees.

You may be able to claim the child and dependent care credit if you paid for the care of a qualifying person to enable you (and your spouse, if filing a joint return) to work or look for work.

For self-employed individuals, it’s a good idea to save receipts from every business-related purchase and to keep track of utility bills and rent or mortgage information. The home office tax deduction is available to self-employed people who use part of their home, owned or rented, as a place of work regularly and exclusively.

Recommended: Updates to the Tax Code That You Should Know

Reasons You May Not Have Gotten Your Tax Forms

First, make sure you know whether or not the form is actually late. Most tax forms should be issued by Jan. 31, but as a general rule of thumb, you don’t need to start worrying about your tax forms being late until Valentine’s Day.

A glitch with your address is the most obvious reason a form has not appeared by then.

If an employer does not have the right address, a mailed W-2 could be rejected and sent back. An address problem can also trip up the delivery of a 1099.

Make sure payers have your correct address, and, if needed, put in an address forwarding order at your local post office or at USPS.com/move.

It’s also a good idea to file an IRS change of address Form 8822. The IRS doesn’t update an address based on a change of address filed with the U.S. Postal Service.

What Do You Do If You Don’t Get Your Tax Forms?

If the deluge of heart-shaped candy boxes has come and gone, there are steps you can take to retrieve your information.

What If You Don’t Get Your W-2?

If your employer provides electronic access to your earnings statement, it will typically email an OK to download it. If that message hasn’t appeared by Jan. 31, you might want to check your spam folder. Or you may have just overlooked the email in the slush pile.

If you can’t get your W-2 by mail or electronically, contact your employer’s HR or accounting department.

If you still aren’t able to resolve the problem, you can turn to the IRS. Call 800-829-1040, the IRS’ toll-free service, with the following information:

•   Your name, contact information, and taxpayer identification number

•   Your employer’s name and contact information

•   The dates you worked there

•   An estimate of how much you earned and how much was withheld from your income in federal taxes; pay stubs might help with this part

You may be asked to file Form 4852, which serves as a substitute for Form W-2 if the W-2 can’t be located. On Form 4852, you’ll need to estimate wages earned and taxes withheld. Base the estimate on year-to-date information from your final pay stub, if possible.

You could also try the IRS “Get Transcript” tool to request your wage and income transcript. It shows the data reported on W-2s, the Form 1099 series, Form 1098 series, and Form 5498 series, but information for the current processing tax year may not be complete until the earnings are reported.

Get up to $300 when you bank with SoFi.

Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!


What If You Don’t Get Your 1099?

If you have not received an expected 1099 by several days after Jan. 31, when most are due, contact the payer.

If you aren’t sure where the 1099 reporting your investment income is, try logging on to your online brokerage account and clicking around. Digital forms are often offered directly to account holders.

The good news is, you aren’t required to attach your 1099s to your tax return unless taxes were withheld from the payments reported on them. So if you have another record of that income — such as year-end account statements, in the case of investments — you may file your taxes with that information.

Recommended: Visit the Tax Season Help Center

What If You Don’t Get Your 1095?

If you don’t have your 1095, you can reach out to the source it should have come from. For the 1095-A, log into your Health Insurance Marketplace account and look for the digital version of the form there.

According to the IRS, you should only wait to file if you’re missing Form 1095-A. The other two types, 1095-B and 1095-C, are not required.

What If You Don’t Get Your 1098?

This is another tax document that’s not formally required by the IRS, but it does contain information you probably want to include on your return, since it could translate to a tax deduction.

If you haven’t received your 1098 in the mail, one first step is to log into the account you have with the lender that issued the mortgage or student loan. Again, digital tax documents are often offered directly to borrowers through the online portal. If you can’t find the documents yourself, call the lender’s customer service line. You might also be able to find the necessary numbers on your year-end statement.

What to Do If You Don’t Have Your Stuff Together On Time

If all else fails and you’re simply feeling crunched for time, you can always file for an extension with the IRS, which involves — of course — a form: Form 4868. Individual tax filers, regardless of income, can electronically request an automatic tax-filing extension.

To get the extension, you must estimate your tax liability on the form and pay any amount due, the IRS says.

You can also get an extension by paying all or part of your estimated income tax due and indicate that the payment is for an extension using Direct Pay, the Electronic Federal Tax Payment System, or a credit or debit card.

An extension gives you an additional six months to get your paperwork in order.

Finally, if you use a tax preparer service, whether a human or software product, keep in mind that your information from the prior year is probably on file, which may help fill in some gaps. Taxpayers can also request a transcript of their prior year’s tax return directly from the IRS.

The Takeaway

Tax time can be stressful even for the most organized among us, and missing tax forms can add angst. If tax forms have not materialized by mid-February, don’t hit the panic button. There are workarounds and simple solutions.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Do you get penalized for missing tax forms?

Tax filers are not penalized for missing forms. If they can’t get the forms, they must still file their tax return on time or get an extension to file.

A business may be penalized for failing to issue W-2s, 1095-Cs, 1099-NECs, or 1099-MISC forms by the deadline to do so.

How long does it take to send missing tax forms?

Copies of W-2s can be requested from the IRS. It can take up to 10 days for an online request to be processed, and up to 30 days for a mail or fax request.

Can I look up my tax forms online?

Usually not. The first step to get missing tax forms re-sent is to contact the entity that issued them. If you still haven’t received the missing or corrected form by the end of February, you may call the IRS at 800-829-1040.

The IRS does keep six years’ worth of transcripts that summarize return information and include adjusted gross income, but information for the current processing tax year may not be complete until the earnings are reported.


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.

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.

SOBK1222047

Read more
man on computer

What Is IRS Form 1098?

A Form 1098 is a tax document that reports amounts that may affect a tax filer’s adjustments to income or deductions from their income on their annual tax return. There are several variations of the form — some are used to report amounts paid and some are used to report charitable contributions made. Any of the forms a person may receive are important documents to refer to when completing annual income tax returns.

Reasons for Getting a Form 1098

There are several variations of Form 1098. The standard form, Mortgage Interest Statement, is probably the one most people are familiar with. It reflects mortgage interest a borrower paid in a calendar year. If a borrower paid $600 or more in interest on a mortgage debt in a calendar year, they should receive a Form 1098 to use when completing their annual tax return. The form includes the amount of mortgage interest paid and any refund of overpaid interest, the outstanding mortgage balance, mortgage insurance premiums paid, and other amounts related to the mortgage loan.

1098-T vs 1098-E

For those who have paid tuition to a college or university or who have paid interest on student loan debt, the Forms 1098-T and 1098-E may be familiar.

•   Form 1098-T, Tuition Statement, includes amounts of payments received by the school for qualified tuition and related expenses. It also includes amounts of scholarships and grants a student may have received, adjustments to those scholarships and grants, and other information.

•   Form 1098-E is a Student Loan Interest Statement. Lenders who receive interest payments of $600 or more from a student loan borrower in a calendar year must provide this form to the borrower. The form includes the amount of student loan interest paid by the borrower, the account number assigned by the lender, and other information.

Other Variations of Form 1098

•   Form 1098-C is connected with a very specific form of charitable giving. It shows any donation a tax filer made to a qualifying charity or non-profit of a car, truck, van, bus, boat, or airplane worth more than $500 and that meets other requirements.

•   Form 1098-F shows any court-ordered fines, penalties, restitution or remediation a person has paid.

•   Form 1098-MA reflects mortgage assistance payments made by a State Housing Finance Agency (HFA) and mortgage payments made by the mortgage borrower, the homeowner.

•   Form 1098-Q is connected with a specific form of retirement-savings vehicle, called a Qualifying Longevity Annuity Contract. This form is a statement showing the money the annuity holder received from such a contract over the course of a calendar year.

Using Form 1098 at Tax Time

For homeowners who are still paying mortgage payments, Form 1098-Mortgage Interest Statement, is an important part of completing a tax return. A tax filer’s deductions depend on a number of specific factors, but there are some general rules to keep in mind when looking at Form 1098.

•   The debt must be secured by real property.

•   The real property that secures the debt must be a main or second home.

•   Mortgages taken out after Dec. 31, 2017, must total $750,000 or less. Those taken out before that date must total $1 million or less.

•   Separate forms will be provided for each qualifying mortgage.

•   It is necessary to itemize deductions on a tax return to claim the mortgage interest deduction.

The potential deduction of interest paid on student loans, shown on Form 1098-E, follows different rules. Notably, this deduction is an adjustment to a tax filer’s income, so it’s not necessary to itemize deductions.

•   The student loan interest deduction is limited to $2,500 or the amount actually paid, whichever is less.

•   The deduction is gradually phased out at certain income levels. For tax year 2021, tax filers with a modified adjusted gross income of $85,000 or more ($170,000 or more if filing a joint return) cannot claim the deduction at all.

Form 1098-T provides information that will be useful for tax filers who qualify for education credits provided by the American Opportunity Credit or the Lifetime Learning Credit.

•   The American Opportunity Credit may be claimed by certain tax filers who paid qualified higher education expenses. To claim the credit, certain qualifications must be met, including income level, dependency status, the type of program the student is enrolled in, the enrollment status of the student, among others. The maximum credit is $2,500 per eligible student and may be claimed for only four tax years per eligible student.

•   The Lifetime Learning Credit may also be claimed by certain tax filers who paid qualified education expenses, but has some differences from the American Opportunity Credit. The annual limit is $2,000 per tax return (not per student). It’s not limited to college-related expenses — courses to acquire or improve job skills are also eligible. There is no limit on the number of years this credit can be claimed, and there is no minimum number of hours a student must be enrolled.

Both the American Opportunity Credit and the Lifetime Learning Credit have income phase-out levels. Like the student loan interest deduction provided by Form 1098-E, both of these credits are adjustments to income and don’t require a tax filer to itemize deductions.

The Takeaway

Any of the variations of Form 1098 contain important information for filing your 2022 taxes. They all include financial information that has the potential to affect the amount of money a tax filer may be able to deduct. For specific information about a tax situation, it’s recommended to talk to a tax professional. The information in this article is only intended to be an overview, not tax advice.

3 Money Tips

  1. Direct deposit is the fastest way to get an IRS tax refund. More than 9 out of 10 refunds are issued in less than 21 days using this free service, plus you can track the payment and even split the funds into different bank accounts.
  2. If you’re faced with debt and wondering which kind to pay off first, it can be smart to prioritize high-interest debt first. For many people, this means their credit card debt; rates have recently been climbing into the double-digit range, so try to eliminate that ASAP.
  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.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.


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.

SOBK0123036

Read more
woman on laptop

What Are the Common Types of Payroll Deductions?

Who doesn’t love receiving a paycheck and knowing you can use it to pay bills or maybe even indulge in a little splurge or two? But when you see just how much you are taking home as net pay vs. gross pay, it can be a little deflating.

Looking more closely at your paystub or direct deposit receipt, you’ll see several line items that are called “deductions.”

Deductions are all of the things that were taken out of your gross pay, leaving you with your net pay, or take-home pay.

While there are some deductions that are required by law and are out of your control, others are part of your employee benefits package, which means that you may be able to adjust them according to what works for you and your budget.

Read on for a paycheck breakdown that can help you understand exactly what is coming out of your paycheck and why, including:

•   What are common payroll deductions?

•   How do payroll deductions work?

•   What are tips to manage payroll deductions?

What is Net Pay?

Whether you’re paid hourly or by salary, your rate of pay is the compensation that you and your employer agreed upon when you accepted the job.

This number appears in official contracts and is referred to as your gross pay. However, it does not represent the actual amount that you will be paid.

Net pay, also referred to as take-home pay, is the compensation that is paid out via check or direct deposit to an employee. It is your gross pay with all the deductions taken out, which can make you think, “Wait, where’d my money go?” when it hits your checking account.

What Are Payroll Deductions?

So, to answer that question: Here’s where your money goes:

•   Mandatory deductions: By law, an employer must subtract various mandatory federal and state tax withholdings.

•   Elective deductions: Employers will also subtract costs for employer-sponsored offerings that the employee takes part in, such as healthcare, life insurance, and retirement.

Whether required or optional, these are pulled out of your gross pay and applied where needed. While you may feel disappointed to see these funds siphoned off, they have an upside. They are saving you from owing major taxes come April 15, and they are potentially helping provide important elements of financial fitness, like saving for your future. This knowledge can be reassuring, especially if you are filing taxes for the first time, and are feeling a bit shocked about the difference between your gross and net pay on an annual basis.

How Do Payroll Deductions Work?

As mentioned above, payroll deductions may be required, such as federal or any state taxes, or they may be optional (say, a 401(k) plan or health insurance). The mandatory and elective deductions are subtracted from your paycheck’s gross pay amount.

What remains after these payroll deductions is your net pay. This is the amount that is paid to you. You can typically see a breakdown of exactly what has been subtracted from your compensation by looking at your paystub. If you are paid via direct deposit, you will likely find this information online at your employer’s portal. If you receive a paper paycheck, the paystub is often attached.

Types of Payroll Deductions

As you look at your paystub and see all the deductions that are being taken out of your gross pay, you may want a bit of help understanding what’s what. Below are explanations of some of the most common paycheck deductions:

Federal Taxes

Federal taxes include all the taxes you are required by law to pay to the federal government. These taxes (which are often referred to as being withheld vs. paid) help fund the federal government, allowing them to invest in things such as infrastructure, education, and national defense, and provide services to the American people.

What is tax withholding and how much must you allocate towards it? When you were first hired, you likely filled out an Employee’s Withholding Certificate or W-4 form form and claimed the number of tax exemptions you have. This amount tells the federal government how much money to take out of each paycheck to cover your taxes. The more allowances you take, the less federal income tax the government will take out of your paycheck.

One way to ensure that you have the right amount of tax withheld for each pay period is to use the IRS Tax Withholding Estimator or speak with someone in your company’s HR department. You can tell them if you’re single or married, how many dependents you have, and if you have any other sources of income, and they should be able to help you fill out your form accurately.

It’s also a good practice to revisit your W-4 selections annually as significant life events may change your withholding and also because the W-4 form is periodically updated.

During tax season of each year, individuals who have overpaid in federal taxes receive a refund from the government. Those who’ve underpaid, however, are required to pay additional funds and possibly a penalty.

Get up to $300 when you bank with SoFi.

Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!


State and Local Income Taxes

There are other types of taxes that will possibly be withheld from your gross pay. Many states require a state tax to help fund government projects and services. The amount can range anywhere from 3% (Pennsylvania) to 13% (California). To learn more about your state’s taxation policy, you can look at this map for details.

Just as with federal taxes, your state income tax will get deducted from your paycheck to cover taxes you may owe at the end of the year.

Social Security and Medicare

Another common paycheck deduction you’ll see: Social Security and Medicare taxes that are part of the Federal Insurance Contributions Act (FICA) tax, a group of payroll taxes collected from both the employer and the employee. As the name implies, these taxes fund our nation’s Social Security and Medicare programs, helping with income and insurance needs once you reach retirement age.

The tax rate for social security is currently 6.2%, and Medicare receives an additional 1.45% (employers match these tax rates, bringing the total of FICA tax contributions to 15.3%).

Wage Garnishments

Another possible payroll deduction to know about: wage garnishments. These are legal procedures designed to repay delinquent, outstanding debts, such as unpaid child support, overdue credit card payments, or even unpaid taxes.

Most wage garnishments are initiated by court order. However, the IRS and other tax collection agencies also levy for unpaid taxes in the form of wage garnishment.

Garnishments are made on earnings leftover after all legally required deductions are made. The actual amount of any garnishment will depend on the amount of debt owed and income earned.

Employee Benefits

Depending on where you work, you may be able to opt into a variety of benefits. Typically, these costs are automatically deducted from your paycheck.

If you sign up for your employer-provided health insurance, at least some of the cost is likely to be a type of paycheck deduction.

Under the Affordable Care Act, employers with 50 employees or more must offer affordable health insurance. As part of an employee’s compensation package, many companies will pay half, or another percentage, of the insurance premiums. The employee’s portion of those premiums is represented on a pay stub as a deduction.

Other benefits, like flexible spending plans, commuter plans, and life insurance, may also be deducted from your pay, depending on whether or not you opt into them and if your employer picks up the bill fully or partially.

Health insurance and other benefits typically come out before your taxes, and you may be able to reduce your taxable income by signing up for them.

Recommended: Guide to Employee Benefits

Retirement Contributions

Employee savings plans such as 401(k)s are a common benefit offered in the workforce.

If you opt into this benefit, your employer will deduct funds from your wage earnings and deposit them into a retirement account. (How much of your paycheck should you save? Experts often recommend 20% should go towards saving for retirement and other short- and long-term goals.)

Employees are typically able to choose the amount they would like deducted from their earnings for retirement savings. In some cases, employers may contribute an additional percentage of your salary into your retirement account.

Contributions to your 401(k) not only help you save for the future, but lower your taxable income, since they come out of your paycheck before taxes get assessed.

You’ll want to keep in mind, however, that there are yearly retirement plan contribution limits set by the federal government through the IRS.

Other Common Payroll Deductions

Depending on your workplace and career, other payroll deductions are possible. Among the ones you may find are:

•   Charitable giving plans

•   Payment for job-required items, such as tools or uniforms

•   Union dues

•   Professional certification or tuition fee deductions

Examples of Payroll Deductions

You’ve learned details about many types of payroll deductions above. In list form, examples of payroll deductions include:

•   Federal income tax

•   State and local income taxes

•   Social Security and Medicare taxes

•   Wage garnishments

•   Employee benefits

•   Retirement contributions

Steps to Calculate Payroll Deductions

Calculating payroll deductions is typically something done by employers, not employees. Here’s a quick overview of how the process typically works:

1.    Obtain a W-4 from employees indicating their withholding.

2.    Determine employees’ gross earnings, whether salary pay or hourly.

3.    Calculate any overtime for those employees who are not exempt and worked over 40 hours a week.

4.    Take any pre-tax deductions.

5.    Calculate and deduct federal income tax based on pay, withholding status, what tax bracket an employee is in, and other factors.

6.    Determine and deduct Social Security and Medicare payments.

7.    Calculate and deduct any state and local taxes.

8.    Take any other deductions, and move funds to the appropriate entity.

Tips to Manage Payroll Deductions

If you are an employee seeking to tweak your deductions, you will have a few options. You might update your W-4 to reflect more or fewer exemptions, depending on whether you want to reduce or increase the taxes withheld.

In addition, if you could use some breathing room in your budget during a financial crunch, you might decrease retirement contributions a notch to free up a little more money for bills.

If you are in a position to be managing payroll deductions, consider these tips for making the process run smoothly:

•   Develop organizational systems to manage forms, deadlines, and other aspects of the process. There are many digital and online tools you can use for this.

•   Keep up to date with federal, state, and local tax laws to make sure you are deducting the proper amounts; know the guidelines about, say, equal pay provisions; and more.

•   Automate the entire process with payroll software. This can save time and boost accuracy versus doing things by hand. Or consider outsourcing the responsibilities to an external agency.

•   Regularly update training for payroll and HR teams, if you employ them.

•   Don’t touch payroll taxes that are only paid quarterly. It may be tempting to dip into those funds before they are due and use them for other business expenses, but this is a very risky path to pursue. If you wind up being short when the taxes must be paid, you could face penalties.

The Takeaway

While you may be surprised to see all the deductions coming out of your paycheck, once you know what number to expect to see landing in your bank account each pay period, you’ll be able to plan your spending and budget accordingly.

It’s a good idea to check your pay stubs periodically to ensure that the deductions being taken out are accurate and align with your financial goals.

If you haven’t maxed out your 401(k) contributions, for example, you may decide to increase them as your income grows and you become more financially stable.

To make sure the appropriate amount of taxes are being withheld from each paycheck, you may also want to revisit your W-4 annually and make any adjustments as your circumstances change.

Another good way to keep close tabs on your earnings and spending is to open an online bank account with SoFi. With our Checking and Savings account, you’ll enjoy an easy-to-read dashboard, the convenience of spending and saving in one place, and automatic saving features that help you organize your cash, track spending, and stash your change with Vaults and Roundups. Qualifying accounts with direct deposit can get paycheck access up to two days early, which can give you a headstart on managing your money. And with SoFi, you’ll earn a competitive APY and pay no account fees.

Want your paycheck to work harder for you? SoFi Checking and Savings can help!

FAQ

What are some common incorrect payroll deductions?

Examples of incorrect employee payroll deductions are expenses that have to do with running the business, workers’ compensation premiums, and some personal protective gear costs. In addition, payroll deductions should not bring an employee’s income below minimum wage.

How do I report payroll deductions?

If you are an employee, your payroll deductions will be reflected in the end-of-year W-2 form that you receive. If you are an employer, you are likely filing IRS Form 941, Employer’s Quarterly Federal Tax Return, or Form 944, Employer’s Annual Federal Tax Return, which shows the wages you’ve paid and various taxes withheld.

What are the pros and cons of payroll deductions?

Payroll deductions are a fact of life. On the plus side, they whisk away taxes regularly so you don’t face a huge tax bill come April 15, and the money paid in taxes can help quality of life in America. Also, deductions like health insurance and retirement savings go towards achieving financial security. The main con, of course, is that you take home less pay than your gross earnings and may need to budget wisely to balance your spending and saving.

What are the categories of payroll deductions?

The main categories of payroll deductions are federal, state, and local taxes; Social Security and Medicare; employee benefits; and retirement contributions.


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.


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.


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.

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.

SOBK1222040

Read more
How to Open a New Bank Account

What Do You Need to Open a Bank Account?

Do you need to open a new bank account? If you’re armed with the right information, opening an account online or in person won’t take long. In some cases, you can apply for a checking or savings account in a matter of minutes.

Whether you’re a first-time banker or changing from one financial institution to another, here’s information that may help make the process easier. We’ll review what you’ll need to open a bank account and highlight the differences between checking and savings accounts. We’ll also share some details about how to use a new bank account. Ready? Here we go!

What Will I Need to Open a Bank Account?

Here’s a list of what you are likely to need when opening a bank account. Gathering them before you actually begin the process of starting a new account will help you save time and frustration:

1. Qualifying information: First, you’ll need to make sure you’re eligible to open a bank account. If you’re under 18, many (but not all) banks may require a parent or legal guardian to open the account with you.

2. Identification: You’ll also need to provide a valid government-issued photo ID such as a driver’s license, non-driver state ID card, or passport.

3. Personal information: Be prepared to provide basic information such as your birthdate, Social Security or Taxpayer Identification number. You’ll also need to give contact information such as your address, phone number, and email.

◦  Other account holder information: If you’re opening a joint account, you’ll need the identifying and personal information listed above for all the account owners.

4. Initial deposit: You will likely need an initial deposit when opening a bank account. The minimum amount required to open an account varies from bank to bank but in some cases, it can be as low as $25. In some cases, it may even be absolutely zero! (We’ll share more on this in a minute.) If you’re transferring the minimum deposit from another bank, you will likely need the routing and account numbers.

5. Username and password: If you’re applying online or opening an account at an online-only bank, you’ll need to establish a username and password.

6. Signatures: If you are applying for an account in person at a branch, you’ll be able to sign all documents there. If you’re applying online, you may be able to use an e-signature, or, depending on the bank, you may have to wait and sign documents that are sent to you via the mail.

Why Open a New Bank Account?

You probably know that bank accounts offer convenience, safety, and flexibility. In fact, if you’re like most people, you probably already have an account or two up and running. But sometimes, there’s a good reason to start a new bank account. Perhaps you want to open a savings account in addition to your checking and earn more interest as you work towards a goal, like the funds to pay for a vacation. Or maybe an online bank offers a great incentive (say, a higher interest rate and fewer fees) than the bricks-and-mortar financial institution you are currently using.

Bank Account Types to Choose From

There are two main types of basic bank accounts: checking and savings accounts. Many people choose to open multiple types of bank accounts at the same time.

Type of Account

Pros

Cons

Checking Account
  • Easy access to money
  • Unlimited withdrawals/transfers
  • Low initial deposit; typically, $25-100 but possibly $0
  • FDIC-insured
  • Debit card
  • Direct deposit
  • No or low interest rate
  • Possible minimum balance required
  • Overdraft and nonsufficient funds often assessed
  • Savings Account
  • Earns interest
  • Easy access
  • Low initial deposit of $25 to $100
  • Low risk
  • FDIC-insured
  • Fees
  • Low annual percentage yields (APYs)
  • No tax benefits
  • Some account restrictions (such as limited monthly withdrawals)
  • If you’re looking for a bank account to use primarily for paying expenses, a checking account with no or low fees is probably best. If you are trying to save for short-term goals such as a car, vacation, or down payment on a home, a savings account may fit your needs. Here’s a closer look.

    Checking Account

    A checking account is held at a financial institution and allows withdrawals and deposits. Checking accounts are liquid. In most cases, you are allowed an unlimited amount of deposits and withdrawals. That’s different from most savings accounts that may limit transactions.

    You can get to your money using checks, ATMs, electronic debits, and debit cards tied to the account. You can deposit using ATMs, direct deposit, and over-the-counter deposits.

    Some checking accounts may pay interest on your balance, but at a very low rate. Almost all bank checking accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per individual. This protects your money against sudden bank closures and other crises.

    Many banks offer apps and other digital tools that help keep track of your checking account balance. They also enable you to make deposits, transfers, and automatic bill pay, as well as provide general budgeting and financial information.

    Depending on where you open the account, there may be minimum balance requirements and other fees to contend with, such as overdraft or non-sufficient funds (NSF) fees, if your balance dips below zero.

    Savings Account

    A savings account is an interest-bearing account also held at a financial institution. Savings accounts are an important source of funds for banks and other finance companies to use as loans. Just about every bank and credit union offers them, and they can be a good place to save funds you’ll need in the short term while still earning a modest amount of interest. The minimum deposit is usually in the range of $25 to $100. A word to the wise, though: High-interest savings accounts may charge a monthly maintenance fee that can erode your interest earned and your savings.

    Like checking accounts, most savings accounts are FDIC-insured. The amount of withdrawals you can make over a certain period of time may be limited (often six per month). Savings account interest rates vary, but in most cases, the amount of interest paid is quite modest (though online banks tend to offer higher rates than bricks and mortar banks). This is especially true when comparing them to less-liquid savings vehicles such as CDs. With most savings accounts, banks may change their rates at any time.

    One last thing to remember: Any interest earned on a savings (or checking) account is considered taxable income and will be reported to the IRS. You will also want to check with banks to see what the minimum deposit and balance requirements are and what kinds of fees are applied to savings accounts.

    💡 Recommended: How Does a Savings Account Work?

    Get up to $300 when you bank with SoFi.

    Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!


    How Much Money Do You Need to Open a Bank Account?

    You will likely need an initial deposit to open your checking account or your savings account. For checking accounts, this can be as low as $25 or $100, depending on the bank and the account services you’ve signed up for. In some cases, though, a bank (usually an online bank) may let you open an account for less – even with no money until your first paycheck is deposited, for instance.

    You can transfer money from an existing account at a bank or credit union into your new account, but be aware the existing account may charge a fee for this. If you’re opening an account in person, cash or a check will work. In some cases, you may have to wait several days for a check to clear before you have access to those funds.

    Using Your New Bank Account

    After your account is opened and funded, you’re ready to go. Be sure to keep an eye out for anything coming to you in the mail, such as a debit card or paper checks.

    •   Utilize Online Features: Next, you’ll want to sign up for any electronic features associated with your account that may help you manage your money. This includes online bill pay, which allows you to pay bills electronically, eliminate paper checks, and take advantage of remote check deposits. Account alerts are another benefit of electronic bank accounts, as they can warn you about unusual activity in your account and if your balance is getting low.

    •   Track Activity: This last feature is important: You’ll want to keep close track of the activity in your checking account to make sure you don’t overdraw. Most banks charge hefty overdraft fees for purchases that put the account in the red. Those fees can add up fast.

    •   Consider Linking Accounts: If you’ve opened both a savings and checking account, you may want to consider linking the two. This way, you may be able to avoid overdraft charges and have a place to put any extra money from your checking account into a more lucrative, interest-bearing account.

    As you see, starting a bank account takes just a little bit of time and information. Doing so is an important step towards optimizing your financial life and giving you a place to keep your money, access it – and even grow it and put it to work for you.

    Bank Better With SoFi

    Looking for one-stop banking? With high interest banking from SoFi, you can quickly open qualifying accounts that earn a healthy APY, banish fees (overdraft, monthly maintenance, and more), and give you access to your direct-deposit paycheck up to two days earlier! And you’ll have access to 55,000 fee-free ATMs within the Allpoint network worldwide just to make things even more convenient.

    Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.


    Photo credit: iStock/atakan

    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.


    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.


    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.

    SOMN1121078

    Read more
    12 Ways to Save Money on Water

    12 Ways to Save Money on Water

    Reducing water usage at home is a great way to lower your monthly expenses and be a better steward to the environment at the same time. But how exactly can you save H2O as well as money spent on water in your daily life?

    Read on for answers, including 12 ways to save on your water bill, and:

    •   What is the average monthly water bill?

    •   Will using less water save you money?

    •   Can lawn care lower your water bill?

    •   How can you save water and money on laundry?

    What Is the Average Monthly Water Bill Per Household?

    The average water bill for a family of four each using roughly 100 gallons of water a day is nearly $73 a month, according to recent statistics. Water bills can vary significantly depending on where you live, how much water your family uses, and the time of year.

    On average, families use more than 50% of their water in the bathroom alone. Those living in an apartment without an outdoor space may spend less on water; outdoor water usage (for gardens, lawns, and pools) accounts for about 30% of the average American’s water bill — up to 70% in the summer.

    Quick Money Tip:Typically, checking accounts don’t earn interest. However, some accounts will pay you a bit and help your money grow. An online bank account is more likely than brick-and-mortar to offer you the best rates.

    Does Using Less Water Save Money?

    You can save money by using less water. That’s because your monthly water bill reflects water usage: The more water you use, the more money you’ll spend. Beyond financial savings, conserving water is great for the environment and can help to provide reliable water for families today and in the future.

    12 Ways to Reduce Your Water Bill and Save Money

    If you’re wondering “How can I save money on my water bill?” you’re in the right place. We’ve compiled a list of 12 helpful ways to save on your water bill every month:

    1. Only Using the Washer for Full Loads

    Washing machines are an essential appliance for keeping our clothes and linens clean, but they require a lot of water to operate. Waiting until you have enough dirty clothes for a full load — or using the machine’s “small load” option in a pinch — can go a long way in reducing water usage.

    Bonus Tip: Because washing machines and laundry detergents have improved significantly over the years, you rarely need to use the hot water option. Using cold water only can keep gas or electric bills down as well.

    Recommended: The Importance of Saving Money

    2. Using a Dishwasher — And Only If It’s Full

    Dishwashers are more efficient at washing dishes than our own hands. The trick? Only run it if it’s fully loaded. That’s how to save money on water usage and your water bill.

    Bonus Tip: Save even more water by simply scraping food scraps off your plate before loading it in the dishwasher. No need to rinse it, which wastes water!

    Recommended: How Much of Your Paycheck Should You Save?

    3. Upgrading to Water-Efficient Appliances

    Today’s washing machines and dishwashers are far more efficient than appliances from even 15 years ago. In fact, an ENERGY STAR-certified dishwasher saves nearly 3,900 gallons of water in its lifetime, and an ENERGY STAR washing machine uses 33% less water per cycle (and requires 25% less electricity to run, too).

    While replacing home appliances has an upfront cost, you’ll save money on water and energy bills in the long run. Some energy-efficient appliances may even come with rebates.

    Bonus Tip: Look for front-load washers; these can use up to half as much water per cycle as top-load units.

    4. Upgrading Plumbing Fixtures, Too

    Major appliances aren’t all you can upgrade. Plumbing fixtures like toilets and showerheads offer another opportunity to cut back on water usage. Search for low-flow (and dual-flush) toilets that use less water per flush; low-flow showerheads better conserve water (saving up to 20% per shower) but actually offer superior performance. In both cases, look for the EPA’s WaterSense label.

    Recommended: How to Find a Contractor for Home Renovations

    5. Taking Shorter Showers

    This tip is pretty simple but bears repeating: The less time you spend in the shower, the less water you’ll use. And as long as you keep your showers short, you’ll save water — and money — by showering instead of taking a bath.

    Bonus Tip: Want to reduce your usage and save more money on water? Get wet when you first step into the shower, then turn off the water while you lather and scrub; then rinse.

    Recommended: Creative Ways to Save Money

    6. Fixing Leaks

    Leaky faucets and toilets that won’t stop running are noticeable, but your home may have other, less obvious plumbing leaks to watch out for, like your hot water tank or supply line. Because many drain pipes exist behind your walls, you may only catch a leak by hearing it, so keep your ears sharp throughout the year.

    The cost to repair a plumbing leak can be high, but doing so will lower your water bill in the long run — and leaks left alone can develop into larger, more expensive problems down the road.

    7.Turning Off the Water When Brushing Your Teeth

    Letting the water run the entire time you brush your teeth — especially if you brush them for the ADA’s recommended two minutes — has become the poster child for wasting water. Turning off the water while you brush can be such an easy way to cut back on water usage and avoid the consequences of not saving money.

    Bonus Tip: This also applies while shaving; only run the water when you need it.

    8. Composting Instead of Using the Garbage Disposal

    Have food scraps? Don’t throw them all in the garbage disposal, which uses water; try composting instead. You can compost foods like fruits, vegetables, eggshells, meat, and coffee (filters included!); doing so can be great for your garden.

    Bonus Tip: Another way to reduce water usage in the kitchen is to thaw frozen meat overnight in the refrigerator, rather than running it under warm water.

    Recommended: How to Save Money While Living Sustainably

    9. Keeping a Pitcher of Water in the Fridge

    If you let the tap run until the water gets cold enough to fill your drinking glass, you’re wasting water. Consider putting a pitcher of water in the fridge instead so that it’s cold when you want it. As a bonus, you can invest in a pitcher with a water filter for cleaner drinking water.

    10. Caring for Your Lawn Strategically

    Before watering your lawn, check the weather forecast. If rain is predicted in the next few days, don’t bother watering the lawn at all. Even if it’s hot out and hasn’t rained lately, your grass may not need water. Try stepping on it; if it springs back up, you don’t need to water it yet.

    If you must water your lawn, check your sprinkler system to ensure there are no leaks, and don’t overwater.

    Bonus Tip: Mowing your lawn less regularly is actually a good thing. Longer grass allows for deeper root growth — and thus a drought-resistant lawn that doesn’t need to be watered as often.

    Recommended: 10 Most Common Budgeting Mistakes

    11. Using a Commercial Car Wash

    Car aficionados may insist upon washing their car every other week (or every week, if they’re dedicated). While washing and waxing your car is good for protecting its paint and maintaining its value, you can get away with fewer car washes. To keep water usage down, try once a month at most.

    You can also cut your own water costs entirely by paying for a commercial wash. Commercial car washes use 60% less water and are designed to prevent water pollution from runoff. Many locations also recycle their wash water multiple times.

    Recommended: How Much Auto Insurance Do You Need?

    12. Covering Your Pool

    Have a pool outside? Make sure you cover it when not in use. Not only does this keep unwanted debris out of the swimming area, but it also helps reduce the amount of water that evaporates each day.

    Recommended: Ways to Stay Motivated to Save Money

    The Takeaway

    Saving money on water isn’t just great for your wallet; it’s also great for the environment. From composting to upgrading appliances to cutting back on car washes, you can dramatically reduce your family’s water consumption — and see great savings on your water bill as a result.

    Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

    FAQ

    How much money can you save on your water bill by using less water?

    The average American spends just under $75 a month on their water bill. If your family reduces water usage by 25%, your bill could drop to roughly $56; if you reduce water usage by 50%, your bill could be below $40. How much money you can save on your water bill depends on how much water you’re able to conserve and what the cost of water is in your city.

    Why is saving water important?

    Reducing water usage does more than lower your water bill. Saving water means that we use less water from rivers, bays, and estuaries — and this is a big deal for our environment. When we use less water, we also reduce water and wastewater treatment costs. Plus, it takes a lot of energy to treat, pump, and heat our water, all of which contribute to air pollution. In areas threatened by drought, reducing our personal water usage ensures our neighbors, friends, and family also have access to the water they need.

    How much water is used per household a year?

    The EPA estimates that the average American uses 82 gallons of water per day. For a family of four, that’s 328 gallons a day or nearly 120,000 gallons a year. Families can save a lot of water by taking simple measures: For example, the EPA estimates families save 13,000 gallons of water per year by replacing inefficient toilets — and 9,400 gallons of water annually by repairing leaks.


    Photo credit: iStock/vorDa

    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.

    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.


    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.


    SOBK1022002

    Read more
    TLS 1.2 Encrypted
    Equal Housing Lender