For some people, freelancing is the way they earn their living, relishing the freedom and flexibility of this type of work. For others, it’s a smart way to bring in some income in addition to a salary. Regardless of whether you’re managing your freelance business as a full-time endeavor or a side hustle, one fact is true: You’ve got to pay taxes on your earnings.
In this guide, you’ll learn about the steps to take in your situation, including:
• How do you pay taxes as a freelancer?
• Why are freelance taxes higher?
• What are some ways to reduce taxable income?
• What deductions should freelancers take?
• What should freelancers know about tax refunds?
How Taxes for Freelancers Are Different
The first thing to note is that taxes for freelancers are notably different in two major ways: Freelancers pay a larger percentage of their income (because of self-employment tax), and they’ve got to make estimated tax payments every quarter.
What Is Self-Employment Tax?
For the 2023 tax year, self-employment tax is 15.3%. That’s 12.4% for Social Security and 2.9% for Medicare.
That doesn’t mean that’s all that freelancers pay. Self-employment tax is what freelancers pay on top of regular income taxes. The percentage you pay in income taxes depends on what tax bracket you’re in but can range from 10% to 37%.
Why do freelancers pay a self-employment tax? When you’re an employee for a business who receives a W-2 form, your company pays some taxes for you.
But if you’re a freelancer — whether a writer, photographer, dog walker, or consultant — your clients don’t pay any taxes for you, so you’ve got to pick up the slack.
And don’t forget: You may also have to pay state and local taxes, depending on where you live.
What Are Quarterly Taxes?
Most people think of April 15 as the dreaded Tax Day for all Americans, when they have to pay their taxes. But taxes aren’t actually due on April 15: They’re due when you earn the money.
That’s why employers withhold taxes from every paycheck. Tax season is just that special time where the IRS wants you to go over the numbers and make sure the right amount was withheld — and pay up if you actually owe more. (Or, if you overpaid, file your return to claim a refund.)
But since taxes aren’t withheld when freelancers earn revenue from clients, the government expects freelancers to make quarterly tax payments throughout the year.
Freelancers have two options:
1. Pay 100% of the taxes they owed the prior year, split over four payments.
2. Pay 90% of the taxes they’ll owe for the current year, split over four payments.
Note that these percentages may be different if you’re a farmer, fisherman, or high-income earner.
Estimated taxes are among the most complicated parts of being a freelancer, and you can face underpayment penalties if you don’t send Uncle Sam your fair share throughout the years.
You can check out the IRS’s guidelines for estimated taxes , but a tax professional may be worth the cost if you’re confused.
💡 Quick Tip: Typically, checking accounts don’t earn interest. However, some accounts do, and online banks are more likely than brick-and-mortar banks to offer you the best rates.
Paying Taxes as a Freelancer
Now that you understand that freelancers must pay more in taxes and that they need to keep track of more tax deadlines, consider the actual process for freelancer tax filing.
Here’s how to pay freelance taxes in five steps.
1. Determine If You Have to Pay Freelancer Income Tax
First and foremost, it’s a good idea to make sure you actually have to pay freelancer taxes. If you fit the bill of the IRS’s definition of an independent contractor, you’ll have to file as a freelancer and will be subject to self-employment taxes.
The IRS says you’re an independent contractor “if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”
It’s a rather broad designation and might fit traditional freelance gigs like writers and graphic designers, but it can also apply to app-based workers, like drivers for Uber and Lyft, and even doctors, lawyers, and veterinarians.
Even if you receive a W-2 from an employer but made other revenue on the side, you’re still subject to freelancer income taxes — and must make estimated payments on that income.
2. Calculate How Much You Earned
As a freelancer, you may receive 1099-NECs from clients for the work you do, detailing just how much money you made from them (as long as you made $600 or more).
Even if you don’t receive a 1099, you still have to report any income you made on your tax return. This means paying taxes if you are paid on Venmo or another platform versus by check or a direct deposit.
If you don’t declare the income, you’re committing tax fraud — and the IRS can find out during an audit.
You may want to use a tax preparation checklist to help you organize these materials. You might start by compiling all your 1099-NECs and any other income forms, including 1099-INTs, 1099-Ks, 1099-MISCs, and W-2s, and then input them on your tax return or into your tax software. If you have additional income not represented by any forms, you’ll be able to report that as well.
3. Compile Your Business Expenses
As a freelancer, you can deduct genuine business expenses from your taxable income. The more expenses you have, the lower your adjusted gross income — and the less you have to pay in taxes.
These are called tax deductions. Many tax filers choose to take the standard deduction: $13,850 for single people or married individuals filing separately and $27,700 for married couples filing jointly. However, freelancers with a lot of business expenses might earn a larger deduction by itemizing all their business expense deductions.
Common Tax Deductions for Freelancers
Business expenses can vary significantly depending on the kind of work you do, but you may be able to to use some of these freelancer tax deductions, like:
• A portion of your rent or mortgage (your home office deduction)
• Phone and internet bills
• Any computer and software expenses
• Automotive expenses, including miles on your car when used for business (and only for business)
• Office supplies
• Travel expenses
• Marketing and advertising expenses
• Continuing education
Freelancers may also be able to take the qualified business income deduction and self-employment tax deduction.
Other Tax Deductions and Tax Credits
Business expenses may apply to freelancers specifically, but independent contractors can take advantage of other common tax deductions and credits.
Other common tax deductions include mortgage interest payments, charitable contributions, student loan interest payments, and the state and local tax deduction.
Tax credits are also a useful tax tool and can greatly reduce your tax bill as a freelancer. Some popular tax credits include the child tax credit, Earned Income Tax Credit, and electric vehicle tax credit.
Recommended: Fastest Ways to Get Your Tax Refund
4. Account for Estimated Payments
If you made estimated tax payments the previous year, don’t forget to apply those to your tax form when filing. After all, if you’ve handed over a chunk of change to the IRS already, you’ll want credit for it.
You’ll add your total payments to line 26 on Form 1040 if filling out the form yourself, but most tax software and accountants should prompt you for this information.
5. File and Calculate Estimated Payments
The last step in how to pay freelance taxes: You’re now ready to complete your forms, and send in your tax return and any payments that you owe. And it’s not necessarily just federal taxes that are needed for freelancer tax filing: Depending on where you live, you may owe state, local, and school district income taxes as well.
After filing, surprise: You’re not done yet. You’ll also need to estimate taxes for the current year. Your first quarterly payment is due on Tax Day in April.
If you’re working with an accountant, they can help you calculate how much you’ll likely owe and print out vouchers for you to mail in with your payments. If you wind up making significantly more or less throughout the year, you can adjust your estimated payments to match. That’s part of learning how to budget on a fluctuating income.
Freelancer Tax-Filing Tips
Freelancing and taxes can seem complicated. Here are tips to help you save money and hit all your deadlines.
Plan for Retirement as a Freelancer
Reducing your taxable income is helpful when you have to pay significantly more in taxes on your earnings. One way to do this — and prepare for your future — is to open a retirement account and make pre-tax contributions.
You can contribute to a traditional IRA, but there are also retirement plans designed for self-employed individuals, including a SEP IRA and a solo 401(k). It’s worth educating yourself about how these work and contribution limits so you can find the best option for your financial situation and aspirations.
Research Deductions
You may be tempted to take the standard deduction when filing, but if you have a lot of business expenses, you may earn a larger tax break by itemizing. Tax software and accountants generally know all the different types of taxes and guidelines. They can help you find all the tax deductions you qualify for, but it never hurts to do some research on your own.
Stay Organized
Organization is crucial when running your own business — and that holds true at tax time. By organizing your bills and tracking your income throughout the year (even on a daily basis), you should have good records of all your revenue and expenses.
Find record- and receipt-keeping systems that work for you. You may also want to set calendar reminders so you never miss a quarterly tax payment deadline.
Work with a Tax Professional
Freelancer income taxes can be challenging and confusing. If you’re overwhelmed and worried about making a mistake, it may be worth the money to hire an accountant or tax preparer.
Plus, the tax-filing fee may count as a deductible business expense for next year.
Understand Tax Refunds for Freelancers
Know that it is unlikely that you’ll get a tax refund as a freelancer. What often triggers a tax refund is that a full-time employee had too much money withheld for taxes from each paycheck and their overpayment comes back to them. (They can adjust their W-4 employee withholding tax form to avoid this situation in the future.)
But as a freelancer, it is unlikely you are overpaying your taxes, especially if you are tracking your income and paying the appropriate amount of quarterly taxes.
Recommended: Maximizing Your Time and Money
The Takeaway
Taxes can get more complicated if you’re a freelancer. You likely will pay more in taxes (thanks to the self-employment tax), and you’ll probably need to make quarterly estimated payments. It’s wise to regularly track and review your earnings and expenses so you can stay on top of how you are doing. For many freelancers, working with a tax professional is the best path forward.
Also worth noting: As a freelancer, you need several tools to stay organized and run your business, including a bank account.
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FAQ
Why is freelance tax so high?
Freelance taxes are higher because they include self-employment tax. This additional 15.3% is what employers traditionally pay on behalf of their employees. In the case of freelancers, they’re both the employer and the employee so they have to cover that amount.
Do I need to declare freelance income?
Yes, you must declare all freelance income. Even if you didn’t make enough to trigger a 1099 from a client — or that client forgot to send you a 1099 — you must report any and all income to the IRS.
What happens if you don’t file freelance taxes?
If you don’t make quarterly tax payments as a freelancer, you could be subject to underpayment penalties when you go to file. If you don’t pay at all, you’ll be subject to Failure to File and Failure to Pay penalties. You’ll owe interest on top of the fines — and eventually could face jail time if you don’t pay.
Can freelancers pay taxes annually?
While freelancers must file taxes annually like everybody else, they are usually required to make quarterly estimated taxes since no taxes are being withheld from their payments throughout the year.
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Life insurance is a type of insurance policy that can provide the policyholder with something almost priceless: the reassurance that loved ones will have the financial support they need after the insured person passes away. More technically, it is a contract between the policyholder and the company providing the insurance coverage.
Whichever way you define it, it’s an important tool that can protect those who depend upon you most if you weren’t here to financially care for them.
Let’s take a closer look at what it’s all about and how it can help give your loved ones a financial safety net — and give you peace of mind.
What Is Life Insurance?
Let’s give you an overview of this important product:
• Life insurance is a kind of a contract between a policyholder and the company issuing the insurance. Specifically, that policy guarantees that the beneficiaries who are named will receive, upon the death of the insured, a sum of money known as a death benefit.
• For this kind of coverage, the policyholder pays premiums during their lifetime. They must also disclose details like their health status and some facets of their lifestyle to be insured.
• Life insurance comes in two main varieties: term insurance, which covers you for a specific time period (or term), and permanent insurance, which covers you for however long you live, even if that’s 110!
Life insurance comes in many different forms and with an array of features. But at its core, it can be thought of as a way of making sure that your loved ones have a financial cushion when you aren’t here. Consider these scenarios:
• Let’s say you have a non-working spouse: Life insurance will mean they are covered so housing, food, and other expenses are provided for.
• Perhaps you have toddlers and want to know that, no matter what, their college tuition will be paid.
• Maybe you have a relative who can’t live independently and you will sleep better at night knowing their care will be taken care of if you weren’t here.
We’ll review the options and specifics in more detail so you have all the info you need to pick the right policy for you. Ready? Here we go! 💡 Quick Tip: The group life insurance offered by employers is a nice perk, but it may not be enough to cover your financial obligations. A supplemental life insurance policy can bridge the gap.
How Life Insurance Works
Let’s define some of the life insurance terms you are likely to hear used when you’re shopping for a policy. Here’s what they mean and how they function to give you the coverage you’re hoping for:
• Death Benefit: It’s a scary term, we hear you! But it’s the crux of life insurance policies. This is the lump sum payment that will be paid out at the time of your death to your beneficiaries if you die while covered by a life insurance policy. It can go a long way towards keeping them in good financial shape. Btw, a death benefit is usually not subject to the usual income tax.
• Beneficiaries: These are the people who receive the death benefit from your life insurance policy. You can name one or more people who you want to be covered. (You can also name trusts and charities.) Beneficiaries usually have plenty of flexibility in how to use the funds. Depending upon the specifics of the financial situation and of policy payout, someone might choose to pay off a mortgage loan, for example, or make monthly payments to stay current.
• Premium: This is the monthly or yearly payment you make to the life insurance company to pay for your coverage and keep your policy in effect.
• Cash Value: Permanent life insurance policies have a cash value savings component that grows over time and can be used or borrowed against.
Types of Life Insurance
Now, let’s take a look at some of the main types of life insurance you might be interested in: term life versus whole life.
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Term Life
As the name suggests, this insurance covers you for a specific term or length of time (think 10, 20, or 30 years, though other lengths are often available). This works well for people who want to know that, say, if anything were to happen to them, their non-working spouse would be able to pay the mortgage for the remaining term. Or if you have children and you want to be sure their educational costs are taken care of if you were to die. Typically, term life insurance is more affordable than permanent life insurance. Worth noting:
• Regular payments must be made to keep the policy active.
• Payments on term life insurance policies are typically fixed.
• If the term ends and you are still alive, that’s great! But you probably don’t get any refund of premium payments.
Permanent Life
This kind of life insurance covers you for your entire life. Whenever you die, your beneficiaries will receive their lump-sum death benefit. What’s more, these policies have a cash value; that is, some of your payments go into a savings vehicle on a tax-deferred basis that you can then tap or borrow against. Because of this extended coverage and the savings function, permanent life insurance is the costlier option, with the price often ranging from five to 15 times that of term life insurance. Permanent life insurance comes in an array of options. Let’s spell out a couple of common ones:
• Whole Life: These life insurance policies provide a death benefit as well as the cash-value account. The latter may have a guaranteed rate of return, and as it grows, there may be dividends paid that can be put towards your premium payments or reinvested in the cash-value account.
• Universal Life: This kind of policy gives you more options than whole life. For instance, you can possibly alter your premium payments, and the cash value will accrue in different ways. Its growth might be tied to an indexed fund like the S&P 500; you’ll hear these life insurance policies referred to as an indexed universal life policy. Or you might prefer what is known as a variable universal life policy. These usually have varied investment accounts that you can manage as you like.
Guaranteed Acceptance or Simplified Issue Life Insurance
These are policies that allow the applicant to avoid the medical examination that is usually required for life insurance. (These are brief exams that often involve a blood draw and urine sample, to chart factors like cholesterol that might influence the cost of your policy.) These forms of insurance can be good for people who don’t like doctor’s appointments, who fear learning what these tests might reveal, and also who want to considerably shorten the time it can take for approval of a policy with what’s known as medical underwriting, which can equal a couple of months.
In Guaranteed Acceptance life insurance, as the name implies, you can’t be turned down; your medical status isn’t an issue. However, you will probably be offered a small death benefit (say, $25,000) and rates will be higher than with some other forms of life insurance.
With Simplified Issue life insurance, the applicant may only have to answer a few questions about their health, no exam required. With these kinds of policies, however, the full death benefit may not be paid unless the policy has been held for two years; if the policyholder dies before then, a refund of premiums may be paid out.
Type of insurance
Period of Coverage
Benefits
Downsides
Term Life Insurance
For a finite period of time (say, 5-40 years)
• Affordable
• Term is tailored to your needs
• You might outlive the policy’s term
• When the policy is over, your premium payments aren’t refunded
Permanent Life Insurance
For your entire life; your beneficiaries will definitely receive a payment
• Peace of mind that loved ones are covered
• Cash value savings account
• Expensive
Guaranteed- or Simplified-Issue Life Insurance
A permanent policy that ensures a small benefit when you die
• No medical exam needed
• Easy to apply for
• Quicker approval
• Lower coverage amount
• Expensive
• Death benefit may not be paid if policyholder dies within a few years of getting the insurance
What Does Life Insurance Cover?
Life insurance covers a variety of expenses. Here are some common examples:
• Unpaid debt
• Medical expenses
• End-of-life expenses
• Monthly expenses, such as utilities, food, and rent or mortgage payments
• Replacement of lost income, if the policy owner was still working at the time of their death
• Child care or dependent care
• Cost of education
• Charitable contributions
It’s important to note that there are certain circumstances when life insurance may not pay out. Examples typically include:
• Suicide, if the policy owner ends their life within two years of purchasing a policy
• Death as a result of acts of war or terrorism
• If the policyholder’s beneficiaries murder them or play a role in the murder
• Death as a result of risky behavior or a profession that involves dangerous activities, like professional car racing or flying a private plane
Which Type of Life Insurance Is Right for Me?
So, now, how do you know what type of policy is best for you? Here’s some food for thought. People often choose term life insurance for one or more of these reasons:
• Finite timing: They expect to have saved up enough money or paid off debts by the time this policy expires and would therefore not need to have their income replaced. Or perhaps they believe their beneficiaries will be financially independent by the time the policy expires.
• Affordability: The policy is more affordable and, therefore, easier to fit within their budget.
Whole life policies typically have premiums that are up to 15 times the cost of term life, and some people may prefer to purchase term life — and then personally invest the difference between a term life premium and a whole life one.
That said, there are plenty of people who decide permanent life insurance is right for them. Here are some typical reasons:
• Long-lasting: This type of insurance is designed to be in force throughout the policy holder’s life, which provides a complete sense of security.
• Cash component: This insurance type has a cash value component, as well, which serves as a savings vehicle. The policy holder can borrow against the value at a predetermined interest rate.
• Possibility of “cashing out”: Some people may like having the ability to surrender their whole life policy during their lifetime and receive the cash value of it. Doing so, however, can have tax implications that can be discussed with a tax professional.
How Much Life Insurance Coverage Do You Need?
Everyone’s situation is unique when it comes to getting life insurance. You may have more kids than, say, your brother. He may have a bigger mortgage. One of you may be more concerned about eldercare costs for your parents down the road. There is no one number that says how much coverage is right for either one of you.
But there are helpful formulas that can help you figure out a sensible amount of coverage. One popular option is the DIME formula. The acronym stands for Debts, Income, Mortgage, and Education. Here’s how to use this formula.
Debts
Gather your debt information, from car loans to personal loans, and from student loans to credit card balances. Forecast out for the number of years you want coverage for. In other words, add up everything that’s owed outside of mortgages.
Income
Take the household’s annual income and multiply it by ten (if you are contemplating a 10-year term, that is). This will provide a ballpark estimate of what it would take to replace lost income during that period of time.
If the life insurance policy would be needed to provide financial support for more than ten years (perhaps because there are young children in the household), use a higher multiplier.
Mortgage
Home loans are usually the largest debt of a household, and often have the longest term. As part of calculating the amount of life insurance to take out, include the payoff on mortgages.
Doing so can help to prevent loved ones from taking on the burden of the house payment expenses and/or from potentially being foreclosed upon.
Education
If there are outstanding student loans, they can be incorporated into the life insurance amount. Also consider children who might have future tuition expenses at college, along with their housing costs, textbooks, and so forth.
When adding up debts, income, mortgage, and education (DIME), what is the total dollar amount? This can be a benchmark for the coverage amount of a life insurance policy. If you have any assets, such as a savings account, you can subtract that from the total dollar amount to get a more accurate picture of the possible financial need. 💡 Quick Tip: Term life insurance coverage can range from $100K to $8 million. As your life changes, you can increase or decrease your coverage.
How Much Does Life Insurance Cost?
Life insurance costs will vary tremendously since each person has their own special needs. You might want $300,000 in term life insurance for 20 years and pay one premium. Or maybe you’d prefer $3 million in permanent insurance. Of course, there will be a big difference in those premium payments!
Let’s look at a few scenarios so you have a ballpark idea of costs, but the best way to get prices that reflect your situation is by working with an agent or using a simple online calculator:
• For a 20-year term policy: For $250,000 of coverage, a 30-year old female would pay $142 a year; a male would pay $159, according to an analysis conducted by Forbes. For $500,000 of coverage, the same woman would pay $204, while a man would pay $246. If we scoot the benefit up to $1 million, the annual cost would be $320 for a woman and $399 for a man.
• For a 30-year term life policy: For $250,000 of coverage, a 30-year-old female would pay $198 a year; a male would pay $235. For $500,000 of coverage, the numbers would be $317 and $381; for $1 million, the annual premium would be $525 for a woman and $669 for a man.
• For permanent life insurance, the costs tend to be higher. One recent quote from Forbes saw that $500,000 of coverage in a 30-year term policy would cost approximately $357 a year for a 30-year-old man. A $500,000 whole life policy would cost $4,323 per year, or almost 6 times more.
Of course, there are huge variations in the price of policies. As you see from the above numbers, if you get term life insurance for a longer period, you’ll pay more than for a shorter period. Also, the more coverage you buy, the higher the premium.
Now, let’s look at a few of the factors that influence the cost:
• Age and gender: The older you are, the more expensive a life insurance policy will be, as health issues tend to crop up. Also, since women have a longer life expectancy than men, their rates are usually lower.
• Your health: Those in excellent health will pay less than those who, say, have high cholesterol or blood pressure and a family history of cancer.
• Lifestyle: This includes everything from whether or not you smoke, have a history of substance abuse, and have a clean driving record, to factors like whether your job or hobbies are deemed high-risk (for example, flying airplanes, scuba diving).
What Is the Process of Buying Life Insurance?
Here’s what to expect from the life insurance buying process:
• Once you decide what kind of policy you want and have an idea of the coverage amount, it’s a good idea to explore your options and get some free quotes. You can talk to a life insurance agent or do your own research online; there are many tools that put the information you want just a click or two away.
• Expect to be asked questions about your health, your family history, your hobbies, and your lifestyle as you shop and apply. This is an important step in figuring out your risk factors and life expectancy, which is used to set your rates.
• Once you’ve found a policy and insurer that you like, fill out that carrier’s application as completely as possible. The application will be reviewed as part of what’s called the underwriting process. The carrier will look at the application through the lens of potential risk. In other words, they will review the application to determine how risky it would be to issue a life insurance policy to that particular applicant — and then price it accordingly.
• For many policies, a medical exam is part of the process. Applicants are asked and should honestly answer about family health history, personal health and lifestyle, prescriptions being taken, surgeries performed, and so forth. A physical exam is often done. This can include a height and weight check, the taking of blood pressure, as well as urine and blood samples.
• After that, you have completed your application. For policies that involve a medical exam, it can take 6 to 8 weeks to be informed of your approval.
Choosing a Beneficiary
Once your application is approved, an important step will be choosing your beneficiary or beneficiaries. This is the person or people who would receive the death benefit if you pass away while covered by a life insurance policy. A few points to consider:
• You can name more than one person and determine the percentage of the death benefit each would receive.
• You can name contingent beneficiaries in case a beneficiary dies before the policyholder does.
• You don’t have to name a person as a beneficiary. You can also work with a lawyer to set up a trust and have the death benefit used as you determine.
• It’s wise to review and update your beneficiaries regularly once you have a life insurance policy. A new baby, a divorce, and other events can trigger you to alter your selections (changes can be made at any point).
Can a Beneficiary Make a Claim?
No one wants to think about death, but it’s a fact of life. It’s also the event that a life insurance policy is inextricably linked to; the death benefit is there to support loved ones after the policyholder passes away. So let’s spell out what would actually happen in this situation:
• Notification of death: The insurer will probably pay claims quickly, usually within a month or in as little as a week, but paperwork must be filed and the beneficiary may have to inform them of the death. The issuer of the policy may not know otherwise.
• Death certificate: The beneficiary must submit a certified copy of the death certificate, which the insurance company will keep.
• Make sure you have satisfied all claim requirements: When actually submitting your claim, have all the supporting documentation attached. This can include a claim form and death certificate.
That’s it! Also, here’s a good thing to know: You don’t need a copy of the insurance policy to file a claim, just the name of the insurance company and the fact that you are a beneficiary.
Making Policy Changes
Life insurance often is a part of your life for a very long time, decades and decades. Sometimes, people will want to change some aspects, such as the amount of the death benefit or the company that is providing the policy. Let’s look at how that works:
• Coverage amount: Let’s say you started with a $500,000 policy, but now, five years into it, want to double the coverage. Can you? The answer to this can vary by the insurance company. Some carriers provide flexibility in their policies that allow a policy holder to change the coverage amount. If considering a particular insurance company and this flexibility is important, ask that question before taking out the policy.
• Switching providers: Consider changing the policy first. You may be able to save time and money by amending or adding to your current policy instead of replacing it. Also, there can be surrender charges that you need to pay if you give up a permanent policy so you can sign on for a new one elsewhere.
What’s more, if you are switching policies after a number of years with one insurer, you are older now, and the rates will be higher. Swapping policies may not actually save you money. It’s often best to go through underwriting and get approved for the new policy first, see how the features and prices compare, and then decide whether or not to cancel the original policy and sign up for a new one.
• New policy waiting periods: If you are thinking of forging ahead with a change, note the waiting period. Most new policies have a waiting period before certain kinds of death benefits become effective. Consider this before replacing your old policy.
Life Insurance Riders
One way to make a change to your life insurance policy involves riders; think of these as add-ons that can help tailor your coverage to your evolving needs. Riders deliver additional benefits; yes, you’ll pay extra, but the amount is usually low because not much underwriting is required.
For instance, if you are the sole provider for your family, you might want to add an Accidental Death Rider, which would increase the amount of the death benefit if a fatal accident occurred. Or maybe you want to explore a Long-Term Care Rider, which would help pay expenses were you in need of nursing home or in-home care. Talk with an agent or explore options online to learn more.
Life Insurance Benefits
There are many benefits of life insurance, but perhaps one of the biggest is that it can offer loved ones a financial cushion in the event you die. That money can be used to cover a wide range of expenses, and it’s generally not taxed by the federal government. (Note that any interest you receive from the policy does need to be reported.)
If you purchase a whole life policy, it has a cash value that grows over time tax-deferred. You can cash it out at any time to help pay for a major expense or to borrow against it.
Reasons to Buy Life Insurance
Here are some common reasons why you may want to consider a life insurance policy.
• Life insurance helps replace your income if you die, which can be especially useful for any beneficiaries who depend on you financially.
• The death benefit your beneficiaries receive can be used to pay for your end-of-life expenses, debts, medical expenses, or estate-related expenses.
• Life insurance can be used to pay federal and state “death” taxes so your loved ones don’t have to shoulder the costs themselves.
• Life insurance can allow you to create an inheritance for your heirs, and the money is usually tax-free.
• You can make a significant gift to a beloved charity after you pass away by naming the organization the beneficiary of your life insurance.
How to Shop for Life Insurance
When you’re ready to look for a policy, you have a couple of places to start your research: online or talking with an agent who’s licensed by your state’s insurance department.
No matter which route you choose, you’ll likely find that the prices of life insurance policies will vary. Though it can take more time, getting multiple quotes can help you find the best deal for your needs and budget.
As you’re weighing your options, consider looking into the financial rating of each insurer. The Insurance Information Institute recommends going with “a company that is likely to be financially sound for many years, by using ratings from independent rating agencies.”
Life Insurance Alternatives
Although life insurance can provide loved ones with a financial safety net after you’re gone, you might be able to get a similar result with another type of vehicle. Here are some common alternatives to life insurance to consider exploring:
• Investments. Investing may be able to potentially grow your wealth, which you can leave behind to loved ones after you’re no longer here. Just remember that there’s a degree of risk involved with investing. Plus, proceeds may be subject to estate taxes and probate.
• Accidental death & dismemberment insurance (AD&D). Like the name suggests, AD&D is a type of supplemental life insurance that provides coverage to your beneficiaries if you’re killed or seriously injured in a type of accident that’s covered in the policy.
• Annuities. An annuity guarantees a certain amount of income each month during retirement. Here’s how it works: You pay into an annuity for a predetermined number of years. After that, the insurance company pays you back the money in monthly installments. Note that some annuities charge fees, and if you pass away prematurely, the value of the annuity might decrease.
The Takeaway
Life insurance can be a challenging topic to dig into. But take heart: Part of what makes it seem complex is that it’s designed to meet the needs of so many very different people. Whatever the specifics of your situation and lifestyle, there is probably a policy that can give you peace of mind.
By acquainting yourself with the basic concepts, terms, and processes, you’re now ready to go out and find a life insurance policy that will let you know your loved ones will be well-provided for if a worst-case scenario occurred (though we sure hope it doesn’t!).
SoFi has partnered with Ladder to offer competitive term life insurance policies that are quick to set up and easy to understand. Apply in just minutes and get an instant decision. As your circumstances change, you can update or cancel your policy with no fees and no hassles.
Explore your life insurance options with SoFi Protect.
FAQ
How is life insurance paid out?
Generally speaking, life insurance is paid out in a few different ways. It can be distributed as a lump sum, through a retained asset account, or by way of a life insurance annuity. Contact your insurer to find out which options are available.
Why is life insurance worth it?
Life insurance can provide the policyholder peace of mind that their loved ones are financially protected after they pass away.
How long do you have to pay life insurance before it pays out?
It depends on your plan. Some plans have a waiting period before coverage begins. If you die during that window, your beneficiaries only receive a refund on the premiums you’ve paid.
Can you use life insurance money for anything?
Yes. Once your beneficiaries receive the death benefit, they can generally use the money however they wish.
Coverage and pricing is subject to eligibility and underwriting criteria.
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The Jefferson Avenue commercial district in Buffalo, New York, is anchored by a supermarket.
There are dozens of other businesses and services along the 12-block corridor — a couple of bank branches, a library, a coffee shop, gas stations, a small plaza with a dollar store and a primary care clinic and a business incubator for entrepreneurs of color.
But Tops Friendly Markets, the only grocery store on Buffalo’s vast East Side, is the center of activity. More than just a place to buy food, pick up medications and use an ATM, the store is a communal gathering space in a predominantly Black neighborhood that, for generations, has been segregated, isolated and disenfranchised from the wealthier — and whiter — parts of the city.
Which explains how it came to be the site of a mass shooting on a spring day in May of last year. On that Saturday, a gunman, who lived 200 miles away in another part of the state, drove to Jefferson Avenue and went into Tops, and in just a few minutes killed 10 people, injured three and inflicted mass trauma across the community.
It is a scenario that has sadly, and repeatedly, played out in other parts of the country that have experienced mass shootings. But this one came with a twist: The gunman’s intention was to kill as many Black people as possible.
To achieve that, he specifically targeted a ZIP code with one of the highest percentages of Black residents in New York state. All 10 who died that day were Black.
“The mere fact that someone can research, ‘Where will the greatest number of Black people be … on a Saturday morning,’ that’s not by chance,” said Franchelle Parker, a community organizer and executive director of Open Buffalo, a nonprofit focused on racial, economic and ecological justice. “That’s not a mistake. It’s a community that’s been deeply segregated for decades.”
The day of the shooting, Parker, who grew up in nearby Niagara Falls, was driving to Tops, where she planned to buy a donut and an unsweetened iced tea before heading into the Open Buffalo office, which is located a block away from Tops. The mother of two had intended to complete the mundane task of cleaning up her desk — “old coffee cups and stuff” — after a busy week.
She saw the news on Twitter and didn’t know if she should keep driving to Jefferson Avenue or turn around and go back home. She eventually picked the latter.
When she showed up the next day, there were thousands of people grieving in the streets. “The only way that I could explain my feeling, it was almost like watching an old war movie when a bomb had gone off and someone’s in, like, shell shock. That’s how it felt,” said Parker, vividly recounting the community’s collective trauma in a meeting room tucked inside of Open Buffalo’s second-story office on Jefferson Avenue.
Almost immediately following the May 14, 2022, massacre, which was the second-deadliest mass shooting in the United States last year, conversations locally and nationally turned to the harsh realities of the East Side and how long-standing factors that affect the daily life of residents — racism, poverty and inequity — made the community an ideal target for a white supremacist.
Now, more than a year after the tragedy, there is growing concern that not enough is being done fast enough to begin to dismantle those factors. And amid those conversations, there are mounting calls for the banking industry — whose historical policies and practices helped cement the racial segregation and disinvestment that ultimately shaped the East Side — to leverage its collective power and influence to band together in an effort to create systemic change.
The ideas about how banks should support the East Side and better embed themselves in the neighborhood vary by people and organizations. But the basic argument is the same: Banks, in their role as financiers and because of the industry’s history of lending discrimination, are obligated to bring forth economic prosperity in disinvested communities like the East Side.
I know banks are often looked upon sort of like a panacea, but I don’t particularly see it that way. I think others have a role to play in all of this.
Chiwuike Owunwanne, corporate responsibility officer at KeyBank
“Banks have been very good at providing charitable contributions to the Black community. They get an ‘A’ for that,” said The Rev. George Nicholas, an East Side pastor who is also CEO of the Buffalo Center for Health Equity, a four-year-old enterprise focused on racial, geographic and economic health disparities. “But doing the things that banks can do in terms of being a catalyst for revitalization and investment in this community, they have not done that.”
To be sure, banks’ ability to reverse the course of the community isn’t guaranteed — and there is no formula to determine how much accountability they should hold to fix deeply entrenched problems like racism. Several Buffalo-area bankers said that while the Tops shooting heightened the urgency to help the East Side, the industry itself cannot be the sole driver of change.
“There are a lot of institutions … that can certainly play a part in reversing the challenges that we see today,” said Chiwuike “Chi-Chi” Owunwanne, a corporate responsibility officer at KeyBank, the second-largest bank by deposits in Buffalo. “I know banks are often looked upon sort of like a panacea, but I don’t particularly see it that way. I think others have a role to play in all of this.”
A long history of segregation
How the East Side — and the Tops store on Jefferson Avenue — became the destination for a racially motivated mass murderer is a story about racism, segregation and disinvestment.
Even as it bears the nickname “the city of good neighbors,” Buffalo has long been one of the most racially segregated cities in the United States. Of the 114,965 residents who live on the East Side, 59% are Black, according to data from the 2021 U.S. Census American Community Survey. The percentage is even higher in the 14208 ZIP code, where the Tops store is located. In that ZIP code, among 11,029 total residents, nearly 76% are Black, the census data shows.
The city’s path toward racial segregation started in the early 20th century when a small number of job-seeking Black Americans migrated north to Buffalo, a former steel and auto manufacturing hub at the far northwestern end of New York state. Initially, they moved into the same neighborhoods as many of the city’s poorer immigrants and lived just east of what is today the city’s downtown district. As the number of Blacks arriving in Buffalo swelled in the 1940s, they were increasingly confronted with various housing challenges, including racist zoning laws and restrictive deed covenants that kept them from buying homes in more affluent white areas.
Black Buffalonians also faced housing discrimination in the form of redlining, the practice of restricting the flow of capital into minority communities. In 1933, as the Great Depression roiled the economy, a temporary federal agency known as the Home Owners’ Loan Corporation used government bonds to buy out and refinance mortgages of properties that were facing or already in foreclosure. The point was to try to stabilize the nation’s real estate market.
As part of its program, HOLC created maps of American cities, including Buffalo, that used a color coding scheme — green, blue, yellow and red — to convey the perceived riskiness of making loans in certain neighborhoods. Green was considered minimally risky; other areas that were largely populated by immigrant, Black or Latino residents were labeled red and thus determined to be “hazardous.”
“The goal was to free up mortgage capital by going to cities and giving banks a way to unload mortgages, so they could turn around and make more mortgage loans,” said Jason Richardson, senior director of research at the National Community Reinvestment Coalition, an association of more than 750 community-based organizations that advocates for fair lending. “It was kind of a radical concept and it has evolved over the decades into our modern mortgage finance system.”
The Federal Housing Administration, which was established as a permanent agency in 1934, used similar methods to map urban areas and labeled neighborhoods from “A” to “D,” with “A” considered to be the most financially stable and “D” considered the least. Neighborhoods that were largely Black, even relatively stable ones, were put in the “D” category.
The result was that banks, which wanted to be able to sell mortgage loans to the FHA, were largely dissuaded from making loans in “risky” areas. And Buffalo’s East Side, where the majority of Blacks were settling, was deemed risky. Unable to get loans, Blacks couldn’t buy homes, start businesses or build equity. At the same time, large industrial factories on the East Side were closing or moving away, limiting job opportunities and contributing to rising poverty levels.
“Today what we’re left with is the residue of this process where we’ve enshrined … a pattern of economic segregation that favors neighborhoods that had fewer Black people in them and generally ignores neighborhoods that had African Americans living in them,” Richardson said.
Case in point: Research by the National Community Reinvestment Coalition shows that three-quarters of neighborhoods that were once redlined are low- to moderate-income neighborhoods today, and two-thirds of them are majority minority communities.
Adding to the division between Blacks and whites in Buffalo was the construction of a highway called the Kensington Expressway. Built during the 1960s, the below-grade, limited-access highway proved to be a speedy way for suburban workers to get to their downtown jobs. But its construction cut off the already-segregated East Side even more from other parts of the city, displacing residents, devaluing houses and destroying neighborhoods and small businesses.
As a result of those factors and more, many Black residents have become “trapped” on the East Side, according to Dr. Henry Louis Taylor Jr., a professor of urban and regional planning at the University at Buffalo. In 1987, Taylor founded the UB Center for Urban Studies, a research, neighborhood planning and community development institute that works on eliminating inequality in cities and metropolitan regions. In September 2021, eight months before the Tops shooting, the Center for Urban Studies published a report that compared the state of Black Buffalo in 1990 to present-day conditions. The conclusion: Nothing had changed for Blacks over 31 years.
As of 2019, the Black unemployment rate was 11%, the average household income was $42,000 and about 35% of Blacks had incomes that fell below the poverty line, the report said. It also noted that just 32% of Blacks own their homes and that most Blacks in the area live on the East Side.
“Those figures remain virtually unchanged while the actual, physical conditions that existed inside of the community worsened,” Taylor told American Banker in an interview in his sun-filled office at the center, located on the University at Buffalo’s city campus. “When we looked upstream to see what was causing it, it was clear: It was systemic, structural racism.”
Banks’ moral obligations
As the East Side struggled over the decades with rampant poverty, dilapidated housing, vacant lots and disintegrating infrastructure, banks kept a physical presence in the community, albeit a shrinking one. In mid-2000, there were at least 20 bank branches scattered across the East Side, but by mid-2022, the number had fallen to around 14, according to the Federal Deposit Insurance Corp.’s deposit market share data. The 14 include four new branches that have opened since early 2019 — Northwest Bank, KeyBank, Evans Bank and BankOnBuffalo.
The first two branches, operated by Northwest in Columbus, Ohio, and KeyBank, the banking subsidiary of KeyCorp in Cleveland, were requirements of community benefits agreements negotiated between each bank and the National Community Reinvestment Coalition. In both cases, Northwest and KeyBank agreed to open an office in an underserved community.
Evans Bank opened its first East Side branch in the fall of 2021. The office is located in the basement of an $84 million affordable senior housing building that was financed by Evans, a $2.1 billion-asset community bank headquartered south of Buffalo in Angola, New York.
Banks have been very good at providing charitable contributions to the Black community. They get an ‘A’ for that. But doing the things that banks can do in terms of being a catalyst for revitalization and investment in this community, they have not done that.
The Rev. George Nicholas, an East Side pastor who is also CEO of the Buffalo Center for Health Equity
On the community and economic development front, banks have had varying levels of participation. Buffalo-based M&T Bank, which holds a whopping 64% of all deposits in the Buffalo market and is one of the largest private employers in the region, has made consistent investments in the East Side by supporting Westminster Community Charter School, a kindergarten through eighth-grade school, and the Buffalo Promise Neighborhood, a nonprofit organization focused on improving access to education in the city’s 14215 ZIP code.
Currently, Buffalo Promise Neighborhood operates four schools. In addition to Westminster, it runs Highgate Heights Elementary, also K-8, as well as two academies that serve children ages six weeks through pre-kindergarten. Twelve M&T employees are dedicated to the program, according to the Buffalo Promise Neighborhood website. The bank has invested $31.5 million into the program since its 2010 launch, a spokesperson said.
Other banks are making contributions in other ways. In addition to the Jefferson Avenue branch and as part of its community benefits plan, Northwest Bank, a $14.2 billion-asset bank, supports a financial education center through a partnership with Belmont Housing Resources of Western New York. Meanwhile, the $198 billion-asset KeyBank gave $30 million for bridge and construction financing for Northland Workforce Training Center, a $100 million redevelopment project at a former manufacturing complex on the East Side that was partially funded by the state.
BankOnBuffalo’s East Side branch is located inside the center, which offers KeyBank training in advanced manufacturing and clean energy technology careers. A subsidiary of $5.6 billion-asset CNB Financial in Clearfield, Pennsylvania, BankOnBuffalo’s office opened a month after the shooting. The timing was coincidental, but important, said Michael Noah, president of BankOnBuffalo.
“I think it just cemented the point that this is a place we need to be, to be able to be part of these communities and this community specifically, and be able to build this community up,” Noah said.
In terms of public-private collaboration, some banks have been involved in a deeper way. In 2019, New York state, which had already been pouring $1 billion into Buffalo to help revitalize the economy, announced a $65 million economic development fund for the East Side. The initiative is focused on stabilizing neighborhoods, increasing homeownership, redeveloping commercial corridors including Jefferson Avenue, improving historical assets, expanding workforce training and development and supporting small businesses and entrepreneurship.
In conjunction with the funding, a public-private partnership called East Side Avenues was created to provide capital and organizational support to the projects happening along four East Side commercial corridors. Six banks — Charlotte, North Carolina-based Bank of America, the second-largest bank in the nation with $2.5 trillion of assets; M&T, which has $203 billion of assets; KeyBank; Warsaw, New York-based Five Star Bank, which has about $6 billion of assets; Northwest and Evans — are among the 14 private and philanthropic organizations that pledged a combined $8.4 million to pay for five years’ worth of operational support, governance and finance, fundraising and technical assistance to support the nonprofits doing the work.
Laura Quebral, director of the University at Buffalo Regional Institute, which is managing East Side Avenues, said the banks were the first corporations to step up to the request for help, and since then have provided loans and other products and education to keep the program moving.
Their participation “is a signal to the community that banks cared and were invested and were willing to collaborate around something,” Quebral said. “Being at the table was so meaningful.”
Richard Hamister is Northwest’s New York regional president and former co-chair of East Side Avenues. Hamister, who is based in Buffalo, said banks are a “community asset” that have a responsibility to lift up all communities, including those where conditions have arisen that allow it to be a target of racism like the East Side.
“We operate under federal charters, so we have an obligation to the community to not only provide products and services they need but also support when you go through a tragedy like that,” Hamister said. “We also have a moral obligation to try to help when things are broken … and to do what we can. We can’t fix everything, but we’ve got to fix our piece and try to help where we can.”
In the wake of a tragedy
After the massacre, there was a flurry of activity within banks and other organizations, local and out-of-town, to respond to the immediate needs of East Side residents. With the community’s only supermarket closed indefinitely, much of the response centered around food collection and distribution. Three of M&T’s five East Side branches, including the Jefferson Avenue branch across the street from Tops, became food distribution sites for weeks after the shooting. On two consecutive Fridays, Northwest provided around 200 free lunches to the community, using a neighborhood caterer who is also the bank’s customer. And BankOnBuffalo collected employee donations that amounted to more than 20 boxes of toiletries and other items that were distributed to a nonprofit.
At the same time, M&T, KeyBank and other banks began financial donations to organizations that could support the immediate needs of the community. KeyBank provided a van that delivered food and took people to nearby grocery stores. Providence, Rhode Island-based Citizens Financial Group, whose ATM inside Tops was inaccessible during the store’s temporary closure, installed a fee-free ATM near a community center located about a half-mile north of Tops, and later put a permanent ATM inside the center that remains there today. And M&T rolled out a short-term loan program to provide capital to East Side small-business owners.
One of the funds that benefited from banks’ support was the Buffalo Together Community Response Fund, which has raised $6.2 million to address the long-term needs of the East Side.
Bank of America and Evans Bank each donated $100,000 to the fund, whose list of major sponsors includes four other banks — JPMorgan Chase, Citigroup, M&T and KeyBank. Thomas Beauford Jr., a former banker who is co-chair of the response fund, said banks, by and large, directed their resources into organizations where the dollars would have an immediate impact.
“Banks said, ‘Hey, you know … it doesn’t make sense for us to try to build something right now. … We will fund you in the work you’re doing,'” said Beauford, who has been president and CEO of the Buffalo Urban League since the fall of 2020. “I would say banks showed up in a big way.”
Fourteen months later, banks say they are committed to playing a positive role on the East Side. For the second year, KeyBank is sponsoring a farmers’ market on the East Side, an attempt to help fill the food desert in the community. Last fall, BankOnBuffalo launched a mobile “bank on wheels” truck that’s stationed on the East Side every Wednesday. The 34-foot-long truck, which is staffed by two people and includes an ATM and a printer to make debit cards, was in the works before the shooting, and will eventually make four stops per week around the Buffalo area.
Evans has partnered with the city of Buffalo to construct seven market-rate single family homes on vacant lots on the East Side. The relationship with the city is an example of how banks can pair up with other entities to create something meaningful and lasting, more than they might be able to do on their own, said Evans President and CEO David Nasca.
The bank has “picked areas” where it can use its resources to make a difference, Nasca said.
“I don’t think the root causes can be ameliorated” by banks alone, he said. “We can’t just grant money. It has to be within our construct of a financial institution that invests and supports the public-private partnership. … All the oars [need to be] pulling together or this doesn’t work.”
‘Little or no engagement with minorities’
All of these efforts are, of course, welcomed by the community, but there is still criticism that banks haven’t done enough to make up for their past contributions to segregating the city. And perhaps more importantly, some of that criticism centers on banks failing to do their most basic function in society — provide credit.
In 2021, the New York State Department of Financial Services issued a report about redlining in Buffalo. The regulator looked at banks and nonbank lenders and found that loans made to minorities in the Buffalo metro area made up 9.74% of total loans in Buffalo. Overall, Black residents comprise about 33% of Buffalo’s total population of more than 276,000, census data shows.
The department said its investigation showed the lower percentage was not due to “excessive denials of loan applications based on race or ethnicity,” but rather that “these companies had little or no engagement with minorities and generally made scant effort to do so.”
“The unsurprising result of this has been that few minority customers or individuals seeking homes in majority-minority neighborhoods have made loan applications … in the first instance.”
Furthermore, accusations of redlining persist today, even though the practice of discriminating in housing based on race was outlawed by the Fair Housing Act of 1968.
In 2014, Evans was accused of redlining by the New York State Attorney General, which said the community bank was specifically avoiding making mortgage loans on the East Side. The bank, which at the time had $874 million of assets, agreed to pay $825,000 to settle the case, but Nasca maintains that the charges were unfounded. He points to the fact that the bank never had a fair lending or fair housing violation, no specific incidents were ever claimed and that the bank’s Community Reinvestment Act exam never found evidence of discriminatory or illegal credit practices.
The bank has a greater presence on the East Side today, but that’s because it has grown in size, not because it is trying to make up for previous accusations of redlining, he said.
“Ten years ago, our involvement [on the East Side] certainly wasn’t what you’re seeing today,” Nasca said. “We were looking to participate more, but we were participating within our means and our reach. As we have grown, we have built more resources to be able to do more.”
Shortly after accusations were made against Evans, Five Star Bank, the banking arm of Financial Institutions in Warsaw, New York, was also accused of redlining by the state Attorney General. Five Star, which has been growing its presence in the Buffalo market for several years, wound up settling the charges for $900,000 and agreeing to open two branches in the city of Rochester.
KeyBank is currently being accused of redlining by the National Community Reinvestment Coalition. In a 2022 report, the group said that KeyBank is engaging in systemic redlining by making very few home purchase loans in certain neighborhoods where the majority of residents are Black. Buffalo is one of several cities where the bank’s mortgage lending “effectively wall[ed] out Black neighborhoods,” especially parts of the East Side, the report said.
KeyBank denied the allegations. In March, the coalition asked regulators to investigate the bank’s mortgage lending practices.
Beyond providing more credit, some community members believe that banks should be playing a larger role in addressing other needs on the East Side. And the list of needs runs the gamut from more grocery stores to safe, affordable housing to infrastructure improvements such as street and sidewalk repairs.
Alexander Wright is founder of the African Heritage Food Co-op, an initiative launched in 2016 to address the dearth of grocery store options on the East Side, where he grew up. Wright said that while banks’ philanthropic efforts are important, banks in general “need to be in a place of remediation” to fix underlying issues that the industry, as a whole, helped create. (After publication of this story, Wright left his job as CEO of the African Heritage Food Co-Op.)
Aside from charitable donations, banks should be finding more ways to work directly with East Side business owners and entrepreneurs, helping them with capital-building support along the way, Wright said. One place to start would be technical assistance by way of bank volunteers.
“Banks are always looking to volunteer. ‘Hey, want to come out and paint a fence? Want to come out and do a garden?'” Wright said. “No. Come out here and help Keshia with bookkeeping. Come out here and do QuickBooks classes for folks. Bring out tax experts. Because these are things that befuddle a lot of small businesses. Who is your marketing person? Bring that person out here. Because those are the things that are going to build the business to self-sufficiency.
“Anything short of the capacity-building … that will allow folks to rise to the occasion and be self-sufficient I think is almost a waste,” Wright added. “We don’t need them to lead the plan. What we need them to do is be in the community and [be] hearing the plan and supporting it.”
Parker, of Open Buffalo, has similar thoughts about the role that banks should play. One day, soon after the massacre, an ATM appeared down the street from Tops, next to the library that sits across the street from Parker’s office. Soon after the ATM was installed, Parker began fielding questions from area residents who were skeptical of the machine and wanted to know if it was legitimate. But Parker didn’t have any information to share with them. “There was no outreach. There was no community engagement. So I’m like, ‘Let me investigate,'” she said. “I think that’s a symptom of how investment is done in Black communities, even though it may be well-intentioned.”
As it turns out, the temporary ATM belonged to JPMorgan Chase. The megabank has had a commercial banking presence in Buffalo for years, but it didn’t operate a retail branch in the region until last year. Today it has four branches in operation and plans to open another two by the end of the year, a spokesperson said.
After the Tops shooting, the governor’s office reached out to Chase asking if the bank could help in some way, the spokesperson said in response to the skepticism. The spokesperson said that while the Chase retail brand is new to the Buffalo region, the company has been active in the market for decades by way of commercial banking, private banking, credit card lending, home lending and other businesses.
In addition to the ATM, the bank provided funding to local organizations including FeedMore Western New York, which distributes food throughout the region.
“We are committed to continuing our support for Buffalo and helping the community increase access to opportunities that build wealth and economic empowerment,” the spokesperson said in an email.
In the year since the massacre, there has been some progress by banks in terms of their interest in listening to the East Side community and learning about its needs, said Nicholas. But he hasn’t felt an air of urgency from the banking community to tackle the issues right now.
“I do experience banks being a little more open to figuring out what their role is, but it’s slow. It’s slow,” said Nicholas. The senior pastor of the Lincoln Memorial United Methodist Church, located about a mile north from Tops, Nicholas is part of a 13-member local advisory committee for the New York arm of Local Initiatives Support Coalition, or LISC. The group is focused on mobilizing resources, including banks, to address affordable housing in Western New York, specifically in the inner city, as well as training minority developers and connecting them to potential investors, Nicholas said.
Of the 13 members, seven are from banks — one each from M&T, Bank of America, BankOnBuffalo, Evans and KeyBank, and two members from Citizens Financial Group. One of the priorities of LISC NY is health equity, and the fact that banks are becoming more engaged in looking at health disparities is promising, Nicholas said. Still, they have more work to do, he said.
“I need them to think more on how to strengthen and build the economy on the East Side and provide leadership around that, not only to provide charitable things, but using sound business and banking and community development principles to say, ‘OK, if we’re going to invest in this community, these are the types of things that need to happen in this community,’ and then encourage their partners and other people they work with … to come fully in on the East Side.”
Some bankers agree with the community activists.
“Putting a branch in is great. Having a bank on wheels is great,” said Noah of BankOnBuffalo. “But if you’re not embedded in the community, listening to the community and trying to improve it, you’re not creating that wealth and creating a better lifestyle for everyone.”
What could make a substantial difference in terms of banks’ impact on the community is a combination of collaboration and leadership, said Taylor. He supports the idea of banks leading the charge on the creation of a comprehensive redevelopment and reinvestment plan for the East Side, and then investing accordingly and collaboratively through their charitable foundations.
“All of them have these foundations,” Taylor said. “You can either spend that money in a strategic and intentional way designed to develop a community for the existing population, or you can spend that money alone in piecemeal, siloed, sectorial fashion that will look good on an annual report, but won’t generate transformational and generational changes inside a community.”
Banks might be incentivized to work together because it could mean two things for them, according to Taylor: First, they’d have an opportunity to spend money in a way that would have maximum impact on the East Side, and second, if done right, the city and the banks could become a model of the way to create high levels of diversity, equity and inclusion in an urban area.
“If you prove how to do that, all that does is open up other markets of consumption all over the country because people want to figure out how to do that same thing,” Taylor said.
Some of that is already happening, at least on a bank-by-bank case, said KeyBank’s Owunwanne. Through the KeyBank Foundation, the company is able to leverage different relationships that connect nonprofits to other entities and corporations that can provide help.
“I see this as an opportunity for us to make not just incremental changes, but monumental changes … as part of a larger group,” Owunwanne said “Again, I say that not to absolve the bank of any responsibility, but just as a larger group.”
Downstairs from Parker’s office, Golden Cup Coffee, a roastery and cafe run by a husband and wife team, and some other Jefferson Avenue businesses are trying to build up a business association for existing and potential Jefferson-area businesses. Parker imagined what the group could accomplish if one of the banks could provide someone on a part-time basis to facilitate conversations, provide administrative support and coordinate marketing efforts.
“In the grand scheme of things, when we’re talking about a multimillion dollar [bank], a part-time employee specifically dedicated to relationship-building and building out coalitions, it sounds like a small thing,” Parker said. “But that’s transformational.”
If you’re in the market for a cash-back credit card that rewards you for the types of purchases you probably make every day (or at least every week), look no further than the USAA Rewards American Express Credit Card. It’s one of the best no-annual-fee cash-back cards around thanks to a generous rewards program and choice nonrewards benefits.
The big catch is that it’s only available to USAA members, who make up a very small minority of U.S. consumers. But if you’re fortunate enough to be an existing or eligible member, this card is definitely worth a closer look.
What Is the USAA Rewards American Express Credit Card?
The USAA Rewards American Express Credit Card is a cash-back card with no annual fee or foreign transaction fees. It offers an accessible sign-up bonus, a 0% intro APR promotion on balance transfers, and a simple but solid cash-back earning structure.
New account holders can earn a tidy sign-up bonus without much effort. The fact that there is no minimum spend for this sign-up bonus makes it accessible to everyone.
New cardholders may also qualify for introductory financing, which offers 0% APR for 15 months on balance transfers and convenience checks that post to your account within 90 days of account opening. This offer is available only for a limited time. And after the introductory APR offer ends, a variable APR will apply — which is currently 14.90% to 30.90%, depending on your creditworthiness.
This card’s rewards program is quite generous for a no-annual-fee card:
3 points per $1 spent on dining
2 points per $1 spent on groceries
2 points per $1 spent at gas stations
1 point per $1 spent on all other eligible purchases
These points are worth one cent each when deposited to a USAA checking or savings account, which is the best redemption option. They’re worth slightly less when you request your rewards as a statement credit.
The card also offers other travel benefits, including auto rental coverage, travel accident insurance, trip cancellation and interruption coverage and baggage delay and reimbursement. Plus, you get extended warranty protection on eligible U.S. manufacturer warranties.
What Sets the USAA Rewards American Express Credit Card Apart?
This card has several features that help it distinguish itself from other credit cards in its category.
0% Intro APR promotion on balance transfers. Although this offer doesn’t waive interest on purchases at any point, its 15-month, 0% intro balance transfer APR is still a good offer. It also covers convenience checks that post to the account within 90 days of account opening, with no additional cash advance fee. That’s unusual (and welcome).
A sign-up bonus that’s easy to earn. New accountholders qualify for this card’s sign-up bonus after making just one purchase with their card. Many other sign-up bonuses have a minimum spend that you must meet in order to receive the bonus, but this one doesn’t.
3x points on dining. For a card with no annual fee, 3x points on dining is a good earning rate for folks who regularly dine out and/or order takeout.
Requires USAA membership. You must be a member of USAA to apply for this card. USAA membership is available to active-duty and retired military service members and their families, which means most consumers aren’t eligible. This is definitely the card’s biggest drawback.
Key Features of the USAA Rewards American Express Credit Card
The USAA Rewards American Express Credit Card offers an easily accessible sign-up bonus, a 0% intro APR promotion, and a simple but solid earning structure.
Sign-Up Bonus
Earn 2,500 bonus points after your first purchase. That’s worth up to $25 at redemption.
Earning Rewards
This card earns 3 points per $1 spent on dining, 2 points per $1 spent on groceries, 2 points per $1 spent at gas stations, and 1 point per $1 spent on all other purchases.
Redeeming Rewards
Rewards can be redeemed for:
Cash back in the form of a statement credit or an electronic deposit to your USAA account
General merchandise
Gift cards from participating merchants
Charitable contributions to participating charities
Travel accommodations through USAA’s own travel booking portal
Minimum redemption requirements vary by redemption method but are generally manageable..
0% Introductory APR Promotion
For a limited time, this card offers 0% introductory APR for 15 months on balance transfers and convenience checks that post to your account within 90 days of account opening. After the intro APR offer ends, a variable APR will apply, which is currently 14.90% to 30.90%, depending on creditworthiness.
Important Fees
This card charges a balance transfer and cash advance fee of 3% of the amount of each transaction. There are late payment and returned payment fees of up to $35, but no foreign transaction fee.
Credit Required
This card requires good or better credit to qualify. If your FICO score is much below 700, your application might be denied.
Pros & Cons
The USAA Rewards American Express Credit Card has several appealing benefits and a couple downsides to keep in mind as well.
Generous rewards program for a no-annual-fee card
Long 0% intro APR promotion on balance transfers and convenience checks
Valuable nonrewards benefits
Requires USAA membership
Very small sign-up bonus
Pros
This card has a generous rewards program, a long 0% intro APR promotional period, and valuable nonrewards benefits.
Strong bonus categories. Earning 3x points on dining and 2x points on groceries and at gas stations can add up quickly. These points are worth $0.01 each when you deposit your rewards into a USAA checking or savings account.
Receive 15 months of 0% APR financing. This offer is a little quirky in that it applies only to balance transfers and convenience checks, both of which have a 3% fee. But it’s rare to find an introductory APR offer that includes convenience checks, which usually charge interest from the get-go.
Valuable benefits. This card comes with a host of travel insurance and purchase protection policies that are usually just found on premium rewards cards. So it’s a welcome surprise to see these benefits on a cash back card with no annual fee.
Cons
This card has strict eligibility requirements and a sign-up bonus that’s almost not worth writing home about.
You must be a USAA member. For the most part, USAA members are very satisfied with their membership, but it’s not open to everyone. You have to be an active-duty or retired service member, or a spouse or child of one. If you’re not eligible for membership — and something like 95% of Americans aren’t — then you can’t apply for this card.
Token sign-up bonus. The new account bonus is very small, even for a no-annual-fee card. Sure, it’s better than nothing, but you’ll barely feel it.
How the USAA Rewards American Express Credit Card Stacks Up
The card’s closest competitor is probably the PenFed Platinum Rewards Visa Signature Card. Here’s how the two cards compare:
USAA Rewards American Express Credit Card
PenFed Platinum Rewards Visa Signature® Card
Annual Fee
$0
$0
Sign-Up Bonus
Tiny
Average
Rewards Rate
Up to 3x
Up to 5x
0% Intro APR
0% intro APR for 15 months on balance transfers and convenience checks
0% intro APR for 12 months on balance transfers
Foreign Transaction Fee
None
None
Credit Needed
Good or better
Good or better
Final Word
It’s great to find a cash back credit card that offers competitive returns with no annual fee. For USAA members, the USAA Rewards American Express is an offer that’s worth considering. If you can take advantage of the bonus rewards categories, as well as the promotional financing terms, then the USAA Rewards American Express could be right for you. And if you’re not a USAA member yet, it could be worth joining just to take advantage of this offer.
The Verdict
Our rating
USAA Rewards American Express Credit Card
The USAA Rewards American Express Credit Card is a competitive cash-back credit card that comes with a strong introductory financing offer. Its strength is the bonus rewards available for dining, grocery, and gas purchases along with the introductory financing offer. However, this card is only available to USAA members. Plus, the financing offer is only valid for balance transfers and convenience checks rather than for new purchases, which limits its usefulness.
Editorial Note:
The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
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Jason Steele is one of the nation’s leading experts in credit cards and travel rewards since 2008. Jason is also the founder and producer of CardCon, which is The Conference for Credit Card Media. Jason lives in Denver, Colorado where he enjoys bicycling, snowboarding and piloting small airplanes.
Most income taxes in the United States are paid by the people with the most income. That is in keeping with the generally progressive nature of the individual federal income tax, the primary source of government revenues, which applies higher tax rates to higher incomes. However, some taxes fall more heavily on people with less income, while the most affluent of all can sometimes pay little or no income tax. A financial advisor can help you plan to manage your taxes.
The Biggest Taxpayers
The biggest source of tax revenue in the United States is the federal individual income tax and the biggest source of individual income tax revenues consists of the nation’s highest earners. In 2023, according to an estimate of the Tax Policy Center, 67% of all federal income tax collected will come from the top 20% of earnings, who were bringing home more than $189,200 annually. The situation where a small minority of high earners pay most of the individual income taxes has remained steady for many years.
Beyond that, figuring out who pays the most total taxes in the United States is complicated by the fact that there are many types of taxes. Federal individual income taxes levied on earnings from working and investing is just one variety, albeit the most important.
Payroll taxes supporting Social Security, Medicare and unemployment benefits are the second-largest source of federal tax revenues. Employers deduct these Federal Insurance Contributions Act (FICA) taxes from workers’ paychecks.
Other taxes include corporate income taxes, estate taxes, gift taxes and customs duties. Excise taxes are assessed on gasoline, alcohol, gambling and some other products and services. These taxes land more or less heavily on different taxpayers. For example, lower-income workers pay a larger percentage of their incomes in payroll taxes than higher-income workers thanks to the cap on income subject to Social Security taxes.
The capital gains tax is a special tax imposed on certain types of investment income that is in lieu of and generally lower than the individual income tax rates. Capital gains taxes are mostly paid by people who have more assets, while people with few assets may pay little or no capital gains tax. Similarly, property taxes, which are the major source of revenue for state and local governments, are only levied on the owners of property such as real estate.
Factors Influencing Who Pays the Most Taxes
A number of factors determine how much someone pays in federal income tax. The interplay between these factors and taxpayers’ efforts to save on taxes while conforming to the tax law, is largely responsible for the complexity of tax planning and preparing tax returns. Here are some of the major considerations.
Taxable income: As your income rises, you move into a higher tax bracket, which means more of your income goes to taxes.
Filing status: Tax rates vary depending on whether you are filing as a single individual, a married couple filing jointly, a married couple filings separately or as a head of household.
Adjustments to income. Retirement plan contributions, student loan interest payments and some other outlays can reduce your taxable income and your taxes.
Exemptions: Taxpayers can further reduce income by claiming exemptions, including dependency exemptions for their children.
Deductions: Yet another way to reduce taxable income is by claiming deductions. In addition to the standard deduction, you may be able to claim deductions for medical expenses, charitable contributions, home mortgage interest and other costs.
Tax credits: Credits for education and energy conservation, among other categories, can not only reduce your taxes but result in the government sending you a check.
Managing your tax liability consists largely of working with these factors. For example, if you have an unusual amount of income in one year, you may be able to use averaging to spread the income among different taxable years, keeping you from moving into a higher tax bracket.
Using the capital gains tax to reduce income taxes is also important. If you have assets that have appreciated in value, you could be subject to a large capital gains tax bill when you sell them. On the other hand, if you never sell them, you may be able to pass them on to your heirs without ever paying any income tax on your increased wealth. Very affluent taxpayers can pay their bills while avoiding income and other taxes by a number of other means, including pledging their assets as collateral for loans, the proceeds of which are not taxable.
The Bottom Line
The people with the highest incomes generally pay the highest taxes in the United States, thanks to the generally progressive individual income tax system used by the federal government. There are some exceptions to this type of policy, as very wealthy individuals can find ways to reduce their taxes – sometimes paying none at all – by making the most of so-called loopholes in the tax code. However, as a rule, the top 20% of earners pay more income taxes than the rest of the tax-paying population put together.
Tax Tips
Managing and reducing the amount of taxes you pay can benefit from the assistance of a financial advisor. Finding a financial advisor doesn’t need to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
SmartAsset’s Federal Income Tax Calculator can help you break down your tax obligations including the total tax as well as the type of tax and your marginal and effective tax rates.
Mark Henricks
Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
Donating to charity isn’t just a way to have a positive impact on society – it’s also a savvy approach to reducing your tax liability. Schwab suggests people who donate to charity on an annual basis may want to consider a tax-smart strategy known as “bunching,” which involves making at least two years’ worth of charitable contributions in one year. Doing so can allow you to itemize your deductions for that year and increase the size of your tax deduction over the two-period. Consider working with a financial advisor if you need help with tax planning or charitable giving.
Standard Deduction vs. Itemizing
Each year, tax filers must choose between taking the standard deduction or itemizing their deductions. If your individual tax deductions exceed the standard deduction in a given year, itemizing is likely the preferable approach. The opposite also rings true. If the total value of your itemized deductions is less than the standard deduction, you’ll want to claim the latter.
2023 Standard Deduction
Single filers and married couples filing separately: $13,850
Married couples filing jointly: $27,700
Heads of household: $20,800
2022 Standard Deduction
Single filers and married couples filing separately: $12,950
Married couples filing jointly: $25,900
Heads of household: $19,400
Choosing between taking the standard deduction or itemizing is key when determining how to best maximize the tax benefit of your charitable contributions.
When to Bunch Charitable Donations
If you regularly donate to charity but your total itemized deductions fall short of the standard deduction, you may want to consider bunching your contributions. Doing so means you’ll make multiple years’ worth of contributions in the current tax year, pushing your itemized deductions above the standard deduction threshold. You’ll then take the standard deduction in the following year(s) since you won’t be making any additional donations.
To illustrate the potential benefits of bunching, Schwab ran the numbers on a hypothetical couple with no children. Schwab assumed the couple made $10,000 in charitable donations in both 2022 and 2023. Their other deductions for both years total $13,000. By taking the standard deduction ($25,900 in 2022 and $27,700 in 2023) in both years, the couple’s two-year deduction adds up to $53,600 – more than would have been had they itemized in both years.
However, if the couple made two years’ worth of donations in 2022, their itemized deductions would have added up to $33,000. They could have then taken the standard deduction in 2023 and their two-year deduction would have added up to $60,700.
By bunching their charitable contributions, the couple would have lowered their combined taxable income in the two years by $7,100.
Bottom Line
Tax filers who regularly donate to charities should consider how to maximize the tax benefit of their goodwill. Schwab recommends making multiple years’ worth of donations in a single year, so your total itemized deductions exceed the standard deduction. This strategy, which is known as bunching, then calls for you to take advantage of the standard deduction in subsequent years when you won’t be making any donations. Doing so can increase the size of your total deductions over that two-year period and lower your taxable income.
Tips for Reducing Your Tax Bill
A financial advisor can help you assess your tax situation and potentially limit how much you end up owing Uncle Sam. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Capital gains can increase the amount of money you ended up owing the government each year. However, harvesting tax losses can help offset those gains. And if your tax losses exceed your capital gains, the IRS permits you to deduct up to $3,000 worth of excess losses from your total income for that year.
If you’re approaching retirement and thinking about moving to a new state, consider the tax environment for retirees in that state. SmartAsset’s retirement tax friendliness tool provides an in-depth look at the places with the best and worst tax environments for retirees.
Patrick Villanova, CEPF®
Patrick Villanova is a writer for SmartAsset, covering a variety of personal finance topics, including retirement and investing. Before joining SmartAsset, Patrick worked as an editor at The Jersey Journal. His work has also appeared on NJ.com and in The Star-Ledger. Patrick is a graduate of the University of New Hampshire, where he studied English and developed his love of writing. In his free time, he enjoys hiking, trying out new recipes in the kitchen and watching his beloved New York sports teams. A New Jersey native, he currently lives in Jersey City.