How Much Money Is Needed to Start a Bank Account?

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

Opening a checking and savings account, whether at an online bank, a brick-and-mortar one, or a credit union, can be a major step towards good money management. With an account set up, you’ll likely be able to receive your paycheck as a direct deposit, swipe a debit card to pay for purchases, and access tools to help you save towards some short-term goals.

But you may worry that you need a chunk of change to open an account. The truth is, though, that you may be able to start an account with zero cash deposited.

While each bank can set its own minimum deposits, some will let you open an account with a single dollar or even no money at all. Or you might encounter certain financial institutions or account types that require $100, $500, or more. You might even find that the account with the higher deposit minimum is the better fit for you.

To better understand minimum deposit and minimum balance requirements, read on. You’ll learn how to make an informed choice by delving into:

•   What are the requirements to open a checking account?

•   What are the requirements to open a savings account?

•   What is a minimum initial deposit at online banks, brick-and-mortar banks, and credit unions?

•   What are some tips for opening a bank account?

What Is a Minimum Initial Deposit?

A minimum initial deposit is the amount of money that a financial institution requires you to deposit in order to open an account. In some cases, this can be as little as $1 or even nothing at all; in other cases, it could be $100 or considerably higher.

Requirements for Opening a Checking Account

The requirements for opening a checking account can vary from bank to bank. If you’re interested in how to open a bank account online or in person, you’ll typically need to provide these things to get started:

•   Your name

•   Date of birth

•   Address

•   Phone number and email

•   Social Security number

•   Government-issued photo ID.

If you’re opening a bank account with someone else, a.k.a. a joint account, you’ll need the same information for them. And if you’re a student opening a student account, you may need to bring proof of enrollment at a qualifying school.

You may well be wondering, “Do I need money to open a bank account?” Possibly, but it may not be a significant sum. Banks can require an initial deposit to open your account. Here’s how to get the cash into a new account:

•   If you’re funding your new account online, you’ll need to give the new bank the routing number and account number for where the money will be coming from.

•   If you are at a bricks and mortar bank or credit union, you might use a check to make an initial deposit.

Bank Minimum Initial Deposit vs. Minimum Balance Requirement

When thinking about how much money you need to start a bank account, it’s important to understand the difference between your initial deposit and your ongoing balance requirement. If a deposit requirement is in place, that is separate from the minimum balance requirement that you may also need to meet to avoid a monthly service fee.

For example, you might need to deposit $100 to open your account. However, in order to avoid a $10 monthly maintenance fee, you may need to keep an average daily balance of $500 there.

A free checking account that doesn’t charge a monthly fee may not have a minimum balance requirement. Check with the bank up front so you are familiar with the terms and aren’t surprised by any fees being deducted.

How Much Does It Cost to Open a Bank Account?

Let’s get down to the dollars and cents of this topic: How much money do you need to open a bank account?

Minimum Opening Deposit for Online Banks

When opening an online bank account, it’s typical to have low or $0 minimum initial deposits for a checking account. Because online banks don’t have to pay for physical locations, they typically are able to pass the savings along to their clients with lower or no minimum deposit requirements.

They may also offer other perks like an annual percentage yield (or APY) on a checking account or a higher APY than elsewhere on savings accounts.

Minimum Opening Deposit for Brick-and-Mortar Banks

If you were to open a bank account at a traditional bank (also known as a brick-and-mortar bank), on the other hand, you might need $25 or more for the initial deposit. And if you have two checking accounts at the same bank, it’s possible you might have to meet different initial deposits for each one.

Jumbo or premium accounts, which may be interest-bearing checking accounts and offer rewards, can also set the bar higher for how much money is required to get started. For example, a jumbo checking account might pay interest on balances of $1,000, $10,000, or more so you would need at least that much to open one.

Minimum Opening Deposit for Credit Unions

How much money do you need to open a checking account at a credit union? If you prefer to open a checking account at a credit union vs. a bank, you will likely find minimum opening deposits that range from zero to $25.

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Can You Open a Bank Account With No Money?

You can probably open a bank account with no money. As mentioned above, you are most likely to find this kind of checking account offered at an online bank vs. a traditional bank.

Before you open this kind of account, though, it can be wise to make sure you understand the terms of the account, including the fine print. Factors to consider include what, if any, fees will be assessed, what balance you may need to maintain, and how and when you need to fund the account.

Recommended: What to Know If You’ve Been Denied a Checking Account

Difference Between Checking & Savings

Checking accounts and savings accounts are both types of deposit accounts. You can find them at online banks, brick-and-mortar banks, and credit unions. But in terms of what they’re designed to do and how they work, they aren’t identical. Here’s a closer look at checking vs. savings accounts.

Checking

Savings

What it’s used for Holding money that you plan to spend or use to pay bills Holding money that you plan to save toward one or more financial goals
Limits on withdrawals The number of transactions allowed may be unlimited, though banks can impose caps on how much you can spend/withdraw daily, weekly or monthly Banks can limit you to six withdrawal transactions per month
Earns interest Typically no (or less than a savings account) Typically yes
Debit card/checks Included with most checking accounts Typically not offered with savings accounts

Tips for Opening a Bank Account

Perhaps you have in mind the kind of account you’d like to open or the financial institution that seems to be the best match with your needs. Here’s advice on moving ahead with opening an account.

Helpful Tips for Putting Money Into a Checking Account

Congratulations if you’ve just opened a checking account. Consider taking these steps:

•   Once your checking account is open, you can continue adding money to it. You may be able to make deposits from your mobile device, at the teller window or at ATMs. Setting up direct deposit can be a good move, too: It means you don’t have to worry about manually depositing checks.

•   Determine how much you should keep in your checking account. If your account has a minimum balance requirement to avoid a fee, then you’d need to keep at least that amount in checking, plus a little extra if you want a cash cushion.

If there’s no minimum balance requirement to meet, then you’d still want to keep enough in checking to avoid triggering overdraft fees. Those can hurt! So a rule of thumb you might use is to keep two months’ worth of expenses in the account. That can make it less likely that you’ll run into overdrafts.

•   Wondering how often should you monitor your checking account? It can be a good idea to log in to your online banking or mobile banking at least once a week. If you sign up for convenient automatic payments of bills, such as utilities, that can make it challenging to remember how much money is flowing in and out of your account, and when. You could check your bank accounts daily if you want to keep a closer eye on your transaction history and balances.

•   Consider linking accounts. You might want to link a savings account to your checking account as a backup payment source. If your checking account balance gets low, this can help you avoid bouncing checks or incurring some fees.

Helpful Tips for Putting Money Into a Savings Account

If it’s a savings account that you’ve opened, consider this advice:

•   You may want to earmark a portion of your direct deposit paycheck to go into a savings account to effortlessly build up your cash reserves there.

•   Another way to fund your savings (such as an emergency fund) is to set up automatic transfers from your checking account the day after payday. This can whisk money out of your checking account before you are tempted to spend it.

•   Shop around for the best possible APY. Interest rates are climbing, and you may be able to snag a great deal. Online savings accounts typically pay more than those at brick-and-mortar banks.

The Takeaway

Checking and savings accounts can make your financial life easier, and you may be able to open an account with very little in terms of an initial deposit, even no money at all. When choosing a banking option, it’s important to consider the fees you might pay, the interest you could earn, and any minimum deposit or minimum balance requirements. Whenever possible, you want your bank to pay for the privilege of holding your money, not vice versa.

SoFi: Making Banking Better

If you’re interested in hassle-free online banking, consider opening a SoFi Checking and Savings account. You’ll earn a competitive APY, pay no account fees, receive a debit card with cashback rewards, and have access to a suite of financial tools that can help your savings grow.

Better banking is here with up to 3.75% APY on SoFi Checking and Savings.

3 Great Benefits of Direct Deposit

  1. It’s Faster
  2. As opposed to a physical check that can take time to clear, you don’t have to wait days to access a direct deposit. Usually, you can use the money the day it is sent. What’s more, you don’t have to remember to go to the bank or use your app to deposit your check.

  3. It’s Like Clockwork
  4. Whether your check comes the first Wednesday of the month or every other Friday, if you sign up for direct deposit, you know when the money will hit your account. This is especially helpful for scheduling the payment of regular bills. No more guessing when you’ll have sufficient funds.

  5. It’s Secure
  6. While checks can get lost in the mail — or even stolen, there is no chance of that happening with a direct deposit. Also, if it’s your paycheck, you won’t have to worry about your or your employer’s info ending up in the wrong hands.

FAQ

How much is needed to open a checking account?

The amount of money needed to open a checking account can vary by bank. At some banks, it may be as low as $1 or even $0; at others, you might need to deposit $25, $50, or more to get started.

Can I open a checking account with no money?

It’s possible to open a checking account with no money if your bank allows you to fund your account later. For example, you may be able to open a bank account online with no money, connect an external bank account, then fund your new account with an initial deposit later.

Can I open a bank account by myself?

You can open a bank account by yourself if you’re 18 or older and have the documentation the bank requires, which can include a government ID and proof of address. If you’re under 18, you’ll generally need a parent or legal guardian to help you open a bank account.


Photo credit: iStock/michellegibson

SoFi members with direct deposit can earn up to 3.75% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 2.50% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 12/16/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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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The Mortgage Loan Process Step-by-Step

Mortgage Loan Process Explained in 11 Steps

There are few things more exciting than buying a home. But before most house hunters can do that, they need to qualify for a mortgage. The mortgage application process is one of those things that may be more complicated to explain than to experience. Still, learning about the steps in advance can help applicants feel better prepared and avoid any unpleasant surprises.

Here’s what you need to know about the mortgage process, including moves you can make that may expedite your approval.

Step-by-Step Guide to the Mortgage Loan Process

1. Estimate Your Budget

Below are the main cost considerations when determining your budget.

Down Payment

When determining how much you’ll put down, keep in mind that the lower your down payment is, the higher your monthly mortgage bill will be — and the more interest you’ll pay over the life of the loan.

Your credit score can be a factor in your down payment options. FHA loans with a low 3.5% down payment require a score of 580. If you can manage a 10% down payment, however, your score can be as low as 500.

A down payment greater than 20% can help you avoid expensive mortgage insurance.

Closing Costs

Many costs come up during the mortgage loan process. Some can be rolled into the loan; the rest make up your closing costs. They can include a home inspection fee, appraisal fee, prepaid property taxes, prepaid homeowners insurance, title insurance, prepaid interest, origination fee, discount points, and FHA, USDA, or VA fees if you choose one of those loans.

Plan on paying between 2% and 5% of the loan principal in closing costs, and set money aside to cover them.

Affordability Rules of Thumb

Certain budgeting guidelines can help you determine what kind of monthly mortgage payment you can afford. You’ll also want to figure in homeowners insurance, any homeowners association (HOA) fees, and possibly mortgage insurance, or PMI.

•   The 28% Rule. This rule advises spending no more than 28% of your gross monthly income on a mortgage payment. If your income is $10,000 a month, for example, your payment should be $2,800 or less.

•   The 35% / 45% Guideline. Some lenders prefer that your total monthly debt be no more than 35% of your pre-tax income or 45% of your after-tax income. This is also known as your debt-to-income ratio.

2. Choose a Mortgage Type and Term

There are many different mortgage types, and choosing one will depend on your income, down payment, location, financial approach, and lifestyle.

Some choices you’ll need to make are:

•   A fixed-rate or adjustable-rate mortgage

•   A conventional or government-insured loan (FHA, USDA, or VA loan)

•   A conforming or nonconforming loan (such as a jumbo loan)

•   If you should opt for an interest-only mortgage

•   Your repayment term: typically 15, 20, or 30 years

A good lender will walk you through your options, whether it’s a HUD home requiring an FHA mortgage or a high-priced home with a jumbo loan.

3. Choose Your Lender

Your lender will have an impact on your financial life for as long as you’re responsible for that mortgage. Finding one who not only offers a great rate but can also help you navigate the mortgage process is one of the smartest things you can do.

These questions to ask a lender can help you narrow down your list.

4. Get Pre-Approved

In the mortgage pre-approval process, homebuyers complete a full mortgage application. The lender will perform a hard credit inquiry and issue a letter confirming your ability to borrow a certain amount of money.

In general, the better your credit score, the better the mortgage rate you’ll be approved for. If your score is above 740, you’ll qualify for the best rates.

A pre-approval letter, usually good for 60 to 90 days, can improve your odds of winning over a seller in a bidding war. In competitive markets, having a pre-approval letter may even be a requirement.

Recommended: What’s the Difference Between a Hard and Soft Credit Inquiry?

5. Find a Property and Make an Offer

Your real estate agent will guide you through the process of finding a property and making an offer. The offer is typically written by the buyer’s agent on a standardized form.

Be sure you only make offers on properties that fall under the amount you’ve been pre-approved for. Otherwise, the lender will need to re-process your full application again. If you don’t qualify for the new, larger amount, you may not be able to secure any loan on the property.

If your offer is accepted, you’ll send the signed paperwork to your lender.

6. Apply for a Mortgage

Lenders are required to do a second credit check before final loan approval and will likely ask for further documentation. If you’ve opened a new account, changed jobs, or made a major purchase since pre-approval, those actions will have to be vetted.

Responding quickly to your lender’s requests for documentation can help keep your application on track.

7. What Mortgage Lenders Look At

Mortgage lenders value creditworthy borrowers. Those with higher incomes, low debt, a healthy amount in savings, and high credit scores are ideal borrowers.

Lenders also take a deep dive into the details on your credit reports, including your payment history, recent applications, credit utilization, major derogatory reports, disputes, and authorized users.

Income, Savings, Assets

A lender’s primary job is to verify that you have enough income, savings, and assets to afford the mortgage you’re applying for. When you submit your mortgage application, you’ll submit bank statements, tax returns, W-2s, retirement account statements, and other documents that show you’ll be able to afford the mortgage.

If you received help from a family member to fund your down payment, you’ll need to provide a gift letter to the lender. This is to verify the source and intention of the funds given to you.

Employment

Mortgage lenders prefer borrowers who have stable, predictable incomes. A steady employment history signals to the lender that you have regular income coming in to make the monthly payments of a mortgage. That’s why it’s easier to get approval as a W-2 employee than as a self-employed worker.

In general, lenders like to see two years of employment in a loan application. Self-employed individuals will submit two years of tax returns.

Credit Score

Buyers often wonder what credit score is needed to buy a house. A homebuyer usually needs a credit score of at least 620 to get a conventional mortgage (one not insured by a government agency).

8. Be Patient and Avoid New Debt

The average time between submitting a mortgage application and closing is 52 days. During this period, it’s wise to observe a self-imposed “credit freeze.” That is, don’t run up your credit cards beyond what you usually spend each month. Put off major purchases. Don’t apply for new credit cards, HELOCs, auto loans, or other new debt. And, of course, make sure to pay all your bills on time.

If there’s any significant change in your credit history, your closing may be delayed or even derailed. Should something major come up (like an expensive medical emergency), call your lender to let them know.

It can be tough feeling like your life is on hold while you’re waiting for your mortgage application to be processed. Try to be patient and just let the process play out. Now is a good time to reach out to friends and family who have been through the mortgage loan process before and commiserate. Consider this your orientation into the homeownership club.

9. Get an Appraisal and Home Inspection

Once your lender has received your contract and full application, they will order an appraisal. This is an independent property evaluation of a home’s value. The appraisal will describe the home and what makes it valuable. Factors that affect the appraisal value include the location, condition, amenities and features, and market conditions in the area.

A lender requires a home appraisal to ensure that it isn’t lending more than the property is worth. If the appraisal comes in too low, the lender won’t lend extra money to cover the gap. Buyers will need to cover the difference with their own money or renegotiate the price with the seller to match the appraisal.

At this point, you’ll want to run through your home inspection checklist. Typically, buyers will hire an inspector to thoroughly check the property inside and out for undisclosed problems. If expensive issues are unearthed, the buyers may negotiate for a price reduction or back out of the deal without penalty.

10. Mortgage Underwriting and Processing

The underwriting process begins after you complete your mortgage application and ends after all the documentation has been completed. The underwriter examines the borrower’s financials, as well as the appraisal, title search, and proof of homeowners insurance.

Once all documentation has been reviewed and verified, the underwriter will recommend approval, denial, or pending. A pending decision is given when information is incomplete. You may still be able to get the loan by providing the documentation asked for.

After underwriting approval with a “clear to close,” you’re set to close on your loan.

11. Close on Your New Home

Closing day is when all parties sign the final documents, and ownership is legally transferred from the sellers. In the days prior to your close, the lender should provide a final list of closing costs. The buyer can pay them by wire transfer a day or two before, or by cashier’s check or certified check that day.

In the past, buyers and sellers, their agents, and lawyers would gather in the same room to sign the paperwork. In recent years, remote online closings have become more common.

SoFi Mortgage Rates

If you’re ready to launch the mortgage loan process, include SoFi in your hunt for a home mortgage loan.

Why SoFi? You’ll find competitive fixed rates on mortgages. Qualified first-time buyers can put just 3% down. And you can get access to a range of member benefits at no cost.

Getting pre-qualified is quick and easy.


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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
This article is not intended to be legal advice. Please consult an attorney for advice.
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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What Is a Gift Tax Return and When Is It Due?

What Is a Gift Tax Return and When Is It Due?

An individual preparing to file a federal tax return will want to think back on gifts given in the prior year. If a gift exceeds a certain threshold, the IRS wants it reported by Tax Day — but only extremely wealthy taxpayers will ever have to pay taxes on their lifetime of gifts.

In 2022, you could have made gifts worth up to $16,000 per recipient without reducing your lifetime exemption, being required to report the gift to the IRS, or paying federal gift tax.

Gifts over that value count toward the lifetime gift and estate tax exemption of $12.06 million (per spouse, if married), rising even higher in 2023.

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Recommended: Does Net Worth Include Home Equity?

What Is a Gift and What Is Not?

According to the IRS, gift tax is applicable when property is transferred from one person to another, with the giver receiving nothing, or less than full value, in return.

The tax applies even when the donor doesn’t consider the transfer a gift.

The IRS defines the federal gift tax broadly, including when the gift is monetary or a physical property, or a donor allowing someone to stay in their property or earn income from the property without getting something equal in return.

Someone who makes an interest-free or reduced-interest loan may also be seen as giving a gift.

When you make a gift other than cash, you must assess the property’s fair market value: the price a willing buyer would pay in the open market. If you’re buying a house from a family member, you might ask for a gift of equity.

Generally, the IRS does not consider these taxable gifts:

•   Gifts that are not more than the annual exclusion for the calendar year

•   Another person’s tuition, as long as payments are made directly to the educational institution

•   Another person’s medical expenses, as long as the payments are made directly to medical service providers

•   Gifts to a spouse who is a U.S. citizen

•   Gifts to a political organization

•   Gifts to IRS-approved charities

Recommended: Rich vs Wealthy: What’s the Difference?

What Is a Gift Tax Return?

Par for the course with the IRS, there’s a form involved if you made a gift exceeding the annual limit: Form 709. It is to be filled out the year after the giving of the gift. So if a relevant gift was given in 2022, the information belongs on the 2023 tax return form.

Information on this form lets the IRS know that a gift has been given that falls within the scope of the gift tax.

Married couples may “split” gifts and essentially double their annual exclusion. If you are married and your spouse consented, you could have given up to $32,000 to an unlimited number of individuals in 2022 with no gift or estate tax consequences. For 2023, that amount rises to $34,000.

Spouses who split gifts always have to file Form 709, even when no taxable gift was incurred.

The gift tax is tied to the estate tax. As of tax year 2022, you can leave up to $12.06 million to relatives or friends free of any federal estate tax. If you’re married, your spouse is entitled to a separate $12.06 million exemption. Clearly this is the province of high earners.

Recommended: Should I Sell My House Now or Wait?

Who Files the Gift Tax Return: the Giver or the Recipient?

Taxes typically fall on the donor, not the recipient.

There may be special circumstances when the recipient will agree to pay the tax. If you make this agreement, the IRS suggests that you contact your tax professional for guidance on how to proceed.

Annual Exclusion for 2022

You could have made an unlimited number of tax-free gifts in 2022 as long as no one received more than $16,000.

If you held back, just know that you can make an unlimited number of tax-free gifts of up to $17,000 in 2023, when the lifetime gift tax exemption increases to $12.92 million per person.

Tracking gifts you make, and all outlays, is easier with a spending app.

When Do You Need to File a Gift Tax Return?

This follows the regular tax filing deadline, which is April 18 in 2023.

If you need a gift tax return extension when you’re not filing a tax extension for your general income tax return, file Form 8892. This will typically give you a six-month extension.

How to File a Gift Tax Return

First, you use the federal gift tax return Form 709 that’s available online through the IRS. The IRS also provides gift tax return instructions. The agency includes determining if you need to file a form and, if so, for what gifts.

You may need to decide whether you and a spouse will split the gift taxes.

Form 709 is complicated. Whether you’re a seasoned tax filer or filing taxes for the first time, a tax pro could be of great help.

Recommended: How Long Does It Take for the IRS to Mail a Refund?

What Happens If I Don’t File a Gift Tax Return?

You could be fined by the IRS, and the taxing authority is becoming more vigilant in levying these failure-to-pay penalties. The fine equals 0.5% for every month that the tax isn’t paid, based on the amount of the gift. So, as time goes by, the fine gets bigger. If the IRS determines that fraud was involved, the fine can go up to 5%.

If this oversight isn’t discovered in a person’s lifetime, the estate could be assessed the accumulated fine.

How Long Should You Keep Gift Tax Returns?

Keep them indefinitely! They will likely be needed by the executor of your estate.

Recommended: Updates to the Tax Code

The Takeaway

A gift tax return might inspire dread, but it’s simply a way for the IRS to track eligible gifts made in a year and over a lifetime. Most people will never pay gift taxes.

Want to keep tabs on gifts and track all of your money in one place? SoFi Insights provides credit score monitoring, spending breakdowns, budget planning, and more at no cost.

Find financial enlightenment with SoFi Insights.

FAQ

What triggers a gift tax return?

The main trigger is exceeding the annual limit of what you can give without taxation. The annual amount per donee is $16,000 in 2022 and $17,000 in 2023.

Do I have to file a gift tax return if I receive a gift?

In general, it’s the donor of the gift, not the recipient, who pays the tax.

What happens if I don’t file a gift tax return?

The IRS may levy fines. If it doesn’t happen in your lifetime, the situation may be uncovered by the IRS after your death, and fines can be levied on the estate.


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*Terms and conditions apply. (Must click on the link to be eligible.) This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the Rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed into SoFi accounts such as cash in SoFi Checking and Savings or loan balances, Stock Bits, fractional shares and cryptocurrency subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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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How to Fill Out Gift Tax Form 709

How to Fill Out Gift Tax Form 709

Form 709 is the way to report to the IRS any gifts made in the prior year that are subject to the gift tax. Don’t worry, though. Most people will never pay any taxes on gifts made over the course of their lives.

The annual gift tax exemption amount is fairly substantial; the lifetime gift tax exemption is stratospheric.

In any given year, you may give gifts under the annual threshold to an unlimited number of people and be free from filling out IRS gift tax Form 709. If you do need to report one or more gifts, again, you’re probably never going to have to pay gift taxes.

What Counts Toward the Gift Tax?

For taxpayers filing in 2023, the gift tax applies to anything worth over $16,000 that they gave another person while receiving nothing, or less than full value, in return.

Whether it’s cash, real estate, stocks, or the use of or income from property, the recipient must be able to have full and immediate access to the gift for the gift to qualify for the annual exclusion.

For gifts of over $16,000 per person, you can apply an amount you gift to the current lifetime estate tax exemption of $12.06 million (if you’re married, your spouse is allowed the same).

Gifts can include assets in any class or type of income, such as:

•   Real estate (including a down payment gift for a first home)

•   Stocks

•   Bonds

•   Digital assets

•   Cryptocurrencies

•   NFTs

•   Loans made with rates below IRS “applicable federal rates”

•   Transfer of benefits of an insurance policy

•   Student loan payments or other debt payments made for another person

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Recommended: Does Net Worth Include Home Equity?

What Is the Annual Gift Tax Exemption?

For tax year 2022 (taxes filed in 2023), you could have given any number of people up to $16,000 each without incurring a taxable gift ($32,000 for spouses “splitting” gifts). That is up from $15,000 in tax year 2021.

You do not have to file Form 709 for a gift you made worth up to $16,000.

The annual gift tax exclusion rose to $17,000 per recipient in tax year 2023, and the lifetime exemption to $12.92 million per individual.

You can log all of your largesse in a spending app that tracks financial goals.

Examples of Gift Tax Rules in Action

Let’s say you gave $116,000 to your mother in 2022 for her birthday. You would report $100,000 of the gift to the IRS, but federal tax law provides you with that unified gift and estate tax exemption ($12.06 million for tax year 2022) to offset any gift tax you may owe.

A married couple you know has three children and five grandchildren they like to shower with generosity. Each spouse may give eight gifts of $17,000 in 2023 to their family members without touching their combined $25.84 million lifetime gift tax exemption or filling out Form 709.

You want to buy a house from a family member. The sale price must equate to what it would be between strangers unless the seller provides a gift of equity — the difference between the selling price and the home’s current market value.

The relative could give you a gift of equity worth the annual exemption ($17,000 in 2023, or $34,000 for spouses “splitting” gifts) without reporting that sum to the IRS. (Another perk: Most lenders will allow the gift to count as the down payment in a non-arm’s-length transaction.) In this example, the seller must report any gift of over $17,000, or $34,000 for spouses, and apply it to their lifetime gift tax exclusion.

Recommended: How Long Does It Take to Get a Tax Refund?

Does the Giver or Recipient Fill Out Form 709?

Form 709 is filled out by the giver of the gift. The donor is also responsible for paying the tax, whether it’s when the gift was given or after the giver’s death.

However, it is possible that the recipient may have to pay the tax if the donor does not.

How to Fill Out Form 709

Understanding what each part means and how to calculate the tax can be difficult. There are a lot of rules and exceptions to understand. When filling out Form 709, getting help from a tax professional is a good idea.

Form 709 is actually called the Gift (and Generation-Skipping Transfer) Tax Return. The generation-skipping transfer tax (GSTT) exemption applies to certain gifts that skip a generation (or are transferred to anyone more than 37.5 years younger than the donor), such as a gift from a grandparent to a grandchild. It also includes trusts.

The GSTT exemption is separate from the gift and estate tax exemption.

Determine If You Are Required to Fill Out Form 709

You do not need to fill out Form 709 if you made contributions for the following reasons:

•   Payments made that qualify for the medical exclusion

•   Payments made that qualify for the tuition exclusion

•   Payments or transfers made to certain political parties or charities

•   Payments to spouses, except for gifts over $164,000 made to non-U.S. citizen spouses (for 2022) and $175,000 (for 2023)

To reiterate, gifts under the annual exclusion amount ($16,000 per person in tax year 2022) do not need to be reported on Form 709.

For couples splitting gifts, if either spouse makes a gift that exceeds the couple’s combined annual gift tax exclusion, or if each spouse makes gifts that exceed the individual annual gift tax exclusion, both spouses will need to file a Form 709, and each will need to provide consent to split gifts on the other spouse’s return.

Each gift tax return should also disclose one-half of the amount over the combined annual gift tax exemption as a lifetime gift.

Part 1: General Information

The first part to fill out is your general information, which is the same as when you’re filing taxes for the first time or you’ve been filing for years. This includes your name, address, and whether or not you elect to split gifts between you and a spouse.

Schedule A

Head to the next page to fill out Schedule A, a computation of taxable gifts, including transfers in trust.

The filer must include information about the gift recipient, a description of the gift, and the value of the gift. Reporting taxable gifts is divided into:

•   Part 1: Gifts subject only to gift tax

•   Part 2: Direct skips

•   Part 3: Indirect skips and other transfers in trust

•   Part 4: Taxable Gift Reconciliation

Schedules B, C, D

Next, fill out Schedules B, C, and D (if applicable). Schedule B is for gifts from prior periods; Schedule C is for claiming unused amounts of the exclusion for a deceased spouse; and Schedule D is for computation of generation-skipping transfer tax.

Part 2: Tax Computation

You’ll enter amounts from Schedules A, B, C, and D back on the first page of Form 709. Your tax return preparation software or professional will calculate the amount of gift tax owed.

If filing a paper return, you’ll need to use the Table for Computing Gift Tax found in the instructions.

The executor of a decedent’s estate will use Form 706 to decide whether any estate tax is owed. Form 706 is also used to compute the GSTT on direct skips.

Recommended: What Tax Bracket Am I In?

The Takeaway

Understanding annual and lifetime gift tax exemptions is easy, but filling out Gift Tax Form 709 may require help from a professional. Remember that you can make an unlimited number of gifts valued at less than the annual limit and skip reporting them to the IRS.

How to log gifts you make and track your spending, debt, and investments? A free money tracker app like SoFi Insights allows you to connect all of your accounts on one mobile dashboard.

SoFi Insights also includes credit score monitoring.

See your total financial landscape and get insights at no cost. Now that’s a gift.

FAQ

Do I file Form 709 with my tax return?

Yes, Form 709 is filed with your federal tax return if you exceeded the annual gift tax exclusion.

What happens if I don’t fill out Form 709?

According to the IRS, filers who are required to fill out Form 709 but do not may be subject to penalties and criminal prosecution.

An audit could reveal a gift not reported. A generous gift might just stick out like a sore thumb. If you’re running behind, file Form 8892 by Tax Day for an automatic six-month extension of time to file Form 709 when you are not applying for an extension to file your individual income tax return.

What should I include with Form 709?

Include all gifts in excess of the annual threshold that were given during the tax year and that need to be reported to the IRS.

Do you have to file Form 709 every year?

IRS Form 709 must be filed every year that gifts worth more than the excluded amount were made. For tax year 2022, that’s any gift given by an individual that was over $16,000 in value; for 2023, it’s gifts over $17,000. Couples may “split” gifts.


Photo credit: iStock/andresr

SoFi’s Insights tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.
*Terms and conditions apply. (Must click on the link to be eligible.) This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the Rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed into SoFi accounts such as cash in SoFi Checking and Savings or loan balances, Stock Bits, fractional shares and cryptocurrency subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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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Earned Income Tax Credit (EITC) Tax Refund Schedule for Tax Years 2022 and 2023

Earned Income Tax Credit (EITC) Tax Refund Schedule for Tax Years 2022 and 2023

The earned income tax credit directly reduces the amount of income tax owed by lower-income working taxpayers. Depending on a tax filer’s number of children, tax filing status, and income, the tax credit can be in the thousands.

Here’s what you need to know about the 2022 EITC tax refund schedule and the 2023 EITC numbers.

Recommended: Does Net Worth Include Home Equity?

What Is the Earned Income Tax Credit (EITC)?

The earned income tax credit, also known as the earned income credit (EIC), is a credit that low- to moderate-income workers can claim on their tax returns to reduce federal income tax owed.

Singles or married couples must have some form of earned income to qualify. Above a certain income level, they aren’t eligible for the credit. The number of qualifying children is also a key component of the tax credit.

The credit ranges from $560 to $6,935 for the 2022 tax year (taxpayers filing by April 18, 2023) and from $600 to $7,430 for 2023.

For those filing federal returns in 2023, the maximum allowable adjusted gross income (AGI) is $59,187 for a married couple filing jointly who have three or more children. Tables with amounts for the tax credit and maximum AGI are in the next section.

At the very least, the EITC reduces the amount of tax owed. At best, low-income people who have little or no income tax liability can receive the total credit in the form of a tax refund.

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Recommended: Are Student Loans Tax Deductible?

How Does the Earned Income Tax Credit Work?

The EITC is a fairly complicated credit, even for taxpayers who are not filing taxes for the first time. In fact, the IRS sees errors in close to 25% of tax returns claiming it. Online tax filing software can help. The IRS also offers an “EITC Assistant” calculator.

The amount of the credit depends on the tax filer’s number of qualifying children, filing status, and earned income or AGI. (AGI is defined as gross income — including wages, dividends, capital gains, business income, and retirement distributions — minus adjustments to income, which can be student loan interest, contributions to a retirement account, educator expenses, or alimony payments.)

Investment income must be $10,300 or less in 2022 ($11,000 or less in 2023).

On your tax form, the credit is filed under the “payments” section, which is a way for the credit to be directly applied dollar for dollar to any income tax you owe.

Workers receive the credit beginning with their first dollar of earned income. The amount of the credit rises with earned income until it reaches a maximum level. Then it begins to phase out at higher income levels.

Taxpayers with earned income or AGI above a certain level won’t qualify for the tax credit at all. These amounts are listed below for tax years 2022 and 2023.

Tax Year 2022 EITC Tax Refund Schedule

Number of children or dependents

Maximum earned income tax credit

Maximum AGI for single, head of household, or widowed filers

Maximum AGI for married joint filers

0 $560 $16,480 $22,610
1 $3,733 $43,492 $49,622
2 $6,164 $49,399 $55,529
3 or more $6,935 $53,057 $59,187

Phaseout amount begins at:

•   Single, head of household, or widowed: $9,160 for no children; $20,130 with qualifying children.

•   Married filing jointly: $15,290 for no children; $26,260 with qualifying children.

Tax Year 2023 EITC Tax Refund Schedule

Number of children or dependents

Maximum earned income tax credit

Maximum AGI for single, head of household, or widowed filers

Maximum AGI for married joint filers

0 $600 $17,640 $24,210
1 $3,995 $46,560 $53,120
2 $6,604 $52,918 $59,478
3 or more $7,430 $56,838 $63,398

Phaseout amount begins at:

•   Single, head of household, or widowed: $9,800 for no children; $21,560 with qualifying children.

•   Married filing jointly: $16,370 for no children; $28,120 with qualifying children.

Who Qualifies for the EITC?

To qualify for the EITC, you must have earned income and meet certain AGI requirements.

Types of income include:

•   W-2 wages from employment

•   Self-employment (or gig or freelance) earnings

•   Certain disability benefits

•   Benefits from a union strike

•   Nontaxable combat pay

You do not have to include income from the following sources:

•   Social Security

•   Child support or alimony

•   Unemployment benefits

•   Pensions or annuities

•   Interest and dividends

•   Pay as a prison inmate

What Are ‘Qualifying Children’?

To claim a child for the EITC, a qualifying child must have a valid Social Security number, meet the four tests of a qualifying child, and cannot be claimed by more than one person.

The four tests for a qualifying child are:

•   Age: A qualifying child can be of any age if they are permanently and totally disabled; under age 19 at the end of the year and younger than you; or under age 24 at the end of the year and a full-time student for at least five months of the year and younger than you.

•   Relationship: A qualifying child can be a son, daughter, stepchild, adopted child, foster child, brother, sister, half brother, half sister, stepsister, stepbrother, grandchild, niece, or nephew.

•   Residency: The child lived with you in your home for more than half the year.

•   Joint return: The child is not filing a joint return with anyone, such as a spouse, to claim any tax credits like the EITC.

Recommended: How Long Does It Take for the IRS to Send Refunds?

Can You Claim the EITC If You Have No Children?

It is possible to claim the EITC if you have no children, but the income threshold is very low and the credit is small.

For tax year 2022, the maximum credit is $560 for filers without children. The maximum adjusted gross income is $16,480 for taxpayers filing as single, head of household, or widowed and $22,610 for married couples filing jointly.

For tax year 2023, the maximum credit is $600. The income figures are in the table above.

Requirements include:

•   A valid Social Security number

•   Not filing Form 2555 (foreign earned income)

•   Main home is in the U.S. for more than half the year

•   Not claimed as a dependent or qualifying child on another tax return

•   You are at least 19 (or 24 if you were at least a part-time student for at least five months of the year, or at least 18 if you are a former foster child after turning 14 or a homeless youth)

There are also special qualifying rules for clergy, members of the military, and taxpayers and their relatives who receive disability payments.

Recommended: Do You Qualify for the Home Office Tax Deduction?

How the EITC Can Affect When You Receive Your Refund

Your tax refund may be delayed if you claim the EITC and file early in the year. The IRS is required to wait until mid-February to issue refunds when the EITC is claimed.

Expect a tax refund by March 1, assuming there were no issues with your tax return and you opted for direct deposit, the IRS says.

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Common Errors to Avoid When Claiming the EITC

The IRS lists five snags to avoid when claiming the earned income credit.

1.    Your child doesn’t qualify: The IRS states that most errors occur because the child doesn’t meet the four requirements relating to relationship, residency, age, and filing status.

2.    More than one person claimed the child: Only one person can claim the qualifying child. If the child counts as a qualifying child for more than one person (such as separated or divorced parents), the IRS has some guidelines on how to choose which person can claim the qualifying child.

3.    Social Security number or last name doesn’t match card: The Social Security number and name must be exactly how they appear on the Social Security card.

4.    Married and filed as single or head of household: Taxpayers cannot claim the EITC if they are married and file as single or head of household.

5.    Over- or underreported income or expenses: Be sure to include all types of income from IRS Forms W-2, W-2G, 1099-MISC, 1099-NEC, and other income unless it’s one of the exceptions listed above.

Recommended: Should I Sell My House Now or Wait?

The Takeaway

The EITC offers income tax relief for lower-income workers. If you think you might qualify, look at the EITC tax refund schedules, seek tax help if you need to, and file electronically for a speedier refund.

While filing taxes isn’t most people’s idea of fun, a free money tracker app can make keeping your financial house in order much easier.

SoFi Insights free budget app will allow you to track your credit score, keep tabs on your cash flow and spending habits (plus find ways to save), monitor your credit usage, and see the paydown progress on your loans.

Take credit for good decisions, like signing up for SoFi Insights.

FAQ

When should I expect my EITC refund?

According to the IRS, a refund with an EITC will arrive around March 1 if you filed electronically and elected for direct deposit, and there were no issues with your return. By law, the IRS cannot issue a tax refund with an EITC before mid-February.

Most taxpayers of all stripes who file electronically should get a refund within 21 days, the IRS said in January 2023.

Will there be an EITC in 2023?

Yes, there is an EITC for 2023. It rises to a maximum of $7,430 for the 2023 tax year.

Will tax refunds be bigger in 2023?

No, not in general. Many taxpayers could see significantly smaller refunds in 2023, the IRS says, thanks to the expiration of expanded tax credits that served as pandemic relief. For the EITC, a taxpayer with no children who received an earned income credit of $1,502 in 2021 will receive a credit of $560 for tax year 2022 ($600 for 2023).


Photo credit: iStock/sinseeho

SoFi’s Insights tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.
*Terms and conditions apply. (Must click on the link to be eligible.) This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the Rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed into SoFi accounts such as cash in SoFi Checking and Savings or loan balances, Stock Bits, fractional shares and cryptocurrency subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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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