Invest in I Bonds And Earn 9.62% Risk-Free

Freaking out over inflation?

If you want a nearly risk-free way to grow your cash, Uncle Sam has an attractive offer for you.

The U.S. government announced a new eye-popping 9.62% interest rate for Series I savings bonds now through October 2022 — the highest interest rate ever for these investments.

Series I bonds — also known as inflation bonds or I bonds — are the only inflation-protected security sold by the Treasury Department.

With inflation at a 40-year high, there’s literally never been a better time to buy I bonds.

At 9.62%, I bonds are not only outpacing inflation, they’re earning more than the stock market so far this year — and even more than bitcoin. (The stock market is down 13.8% in 2022 and bitcoin is down 18.5%).

At 9.62%, these bonds offer a rate about 13 times higher than what you’d currently earn from high-yield savings accounts.

And since I bonds are backed by the full faith and credit of the U.S. government, your risk of losing money is basically zero. (Historically, the U.S. government has never defaulted on bonds.)

But before you rush to buy I bonds, there are a few things you need to know.

What Are I Bonds and How Do They Work?

I bonds are issued by the U.S. government and they can be purchased at

The interest rate on I bonds adjusts twice a year (in May and November) based on changes in the Consumer Price Index.

I bond rates actually combine two different figures:

  • A semiannual (twice a year) inflation rate that fluctuates based on changes in the Consumer Price Index.
  • A fixed rate of return, which remains the same throughout the life of the bond. (It’s currently at 0%.)

In April 2022, inflation increased 8.5% year-over-year, the biggest surge in more than 40 years. As inflation keeps rising, so does the variable rate on I bonds:

  • May 2021:  3.34%
  • November 2021: 7.12%
  • May 2022: 9.62%

While new buyers will enjoy 9.62% on these bonds for now, that rate can change after six months. It goes up or down, depending on national inflation.

Pro Tip

Check out this chart from the U.S. Treasury to see how I bond rates have changed over time. 

On November 1, 2022, The Treasury will calculate a new variable rate. If inflation continues to heat up, you could get more interest on your I bonds. If it cools off, your variable rate declines.

But you won’t lose money if the interest rate goes down — you just won’t earn as much. (The I bond inflation rate in May 2015, for example, was just 0.24%.)

New I bond buyers will miss out on the fixed rate enjoyed by purchasers in years past. That’s because the current fixed rate for I bonds is 0% — where it’s been since May 2020.

Since this half of the bond rate is locked in, your 0% fixed rate won’t increase over time. Instead, all the money you make from an I bond purchased today will be interest earned from the inflation-based semiannual rate.

Must-Know Facts About I Bonds

While I bonds are virtually risk-free, they still come with rules and restrictions.

First, these are 30-year bonds. Your cash isn’t locked up for three decades but you absolutely can’t access your money for at least 12 months. The government won’t allow you to cash out an I bond any sooner.

After a year, you can cash it in, but you’ll lose three months worth of interest if you cash out less than five years after purchase.

I Bond Fast Facts

  • I bonds are sold at face value (no fees, sales tax, etc.)
  • They earn interest monthly that is compounded twice a year.
  • The bond matures (stops earning interest) after 30 years.
  • You have to wait at least one year to cash in I bonds.
  • You’ll lose three months of interest payments if you cash in a bond you’ve owned for less than five years.
  • Minimum investment is $25.
  • Maximum digital I bond investment is $10,000 per person, per year.
  • The value of your I bond will never drop below what you paid for it.
  • It’s exempt from state and municipal taxes.
Pro Tip

You can also buy up to $5,000 in paper I bonds per year. The only way to get paper bonds is at tax time with your federal refund. 

Speaking of taxes, you can choose to either pay federal income tax on the bond each year or defer tax on the interest until the bond is redeemed.

You may be able to forgo paying federal tax altogether by using the bonds for higher education costs. Your adjusted gross income needs to be under $83,200 for a single filer in 2021 to qualify for this education tax perk, or $124,800 for couples.

How to Purchase I Bonds

The fastest and easiest way to purchase I bonds is on the TreasuryDirect website. It’s a free and secure platform where you can view all your account information, including pending transactions.

You can also give I bonds as a gift.

Another option is buying I bonds at tax time with your refund. You can buy I bonds in increments of $50 this way. You don’t need to put your entire refund in bonds — you can earmark just part of it.

FYI: You can’t resell I bonds and you must cash them out directly with the U.S. government. Also, only U.S. citizens, residents and employees can purchase these bonds.

The Treasury also offers a payroll savings option, which lets you purchase electronic savings bonds with money deducted from your paycheck.

Who Are I Bonds Right For?

There are a few ways investors can benefit from purchasing I bonds at the current 9.62% rate.

Scenarios When It Makes Sense to Buy I Bonds

  • You’re worried about inflation and stock market fluctuations.
  • You want to diversify your stock-heavy portfolio with a safe investment.
  • You’re nearing retirement and are shifting your portfolio toward bonds.
  • You want to save money for a child’s future college expenses.
  • You’re saving up for a big purchase that’s at least a year away, and want to earn a little interest on your cash in the meantime.

Because I bonds can’t be cashed in for a year, it’s important to keep enough money in your cash emergency fund to cover immediate expenses.

I bonds won’t make you rich. But for everyday Americans, these investments offer a safe way to grow your cash and hedge against inflation.

Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder. 




Earnings from Survey Sites are Taxable Income

Paid survey sites can be a simple way to earn a little extra cash in your free time.

And although surveys aren’t our favorite way to make extra money, they can be a convenient side hustle to take on while you’re doing other things— like waiting on-hold with your bank or in line at the grocery store. Why not turn those empty moments into extra cash by clicking a few buttons?

While many survey sites simply aren’t worth the hype, InboxDollars is one of the rare legitimate paid survey companies out there.

Sites like these typically pay in points instead of direct cash, but you can use those points to purchase gift cards with actual cash value. Should you prefer cash over the cards, you can aso turn around and sell any gift cards you earn.

Which leads us to a common question…

Do Paid Surveys Count Toward Taxable Income?

Whatever you earn through survey sites — or any other apps you use to earn money — counts toward your gross income come tax time.

A reader wrote to ask us about this:

“Is there any way to make money or (earn) gift cards that isn’t going to have to be filed on our taxes as income?”

Short answer: Not really.

Longer answer: Taxes are complicated, but let’s quickly break it down.

The IRS files all the money you receive into tons of different categories. It taxes most of them, including those you probably expect:

  • Salary or wages
  • Tips
  • Freelance income (where your app income probably fits in).

Here’s why: Yes, technically you’re receiving the income as a “gift card,” but it isn’t a gift, per se.

To the IRS, cash equivalent items look just like income, so you count them as part of your wages (unless it’s something small, like donuts from your boss).

More Things That Count Come Tax Time

Because we know you like finding creative ways to make money, here are some taxable items you might not expect:

  • Bartering: If you fix your neighbor’s chimney in exchange for their son mowing your lawn, the IRS wants to know the value of those lawn-mowing services.
  • Gambling winnings: You have to report any money or prizes you win gambling. But you can deduct your losses. That’s one stroke of good luck!
  • Hobby income: Do you make money from a blog or selling antiques? You have to report that. But you can also deduct expenses, like hosting or travel, up to the amount of your hobby income.
  • Illegal activity: Did you earn money selling drugs or a stolen car this year? (Please don’t answer that.) The IRS wants to know about it. So do your local police.
  • Canceled debts: Pay attention to this one. If you negotiate with a creditor about credit card debt or a hospital to reduce a medical bill, you’ll have to report it as income.
  • Alimony: This counts as income in the eyes of the IRS. (Child support is different. Keep reading.)

What You Don’t Have to Count as Income for Tax Purposes

Back to that reader question … here are a few things you don’t have to report as taxable income:

  • Olympic medals and prizes: Headed to the Olympics or Paralympics sometime soon? Thanks to a 2016 law under former President Obama, you won’t pay taxes on the spoils if you win.
  • Child support: No taxes on child support you receive! The payer foots the tax bill on that money.
  • Carpool money: If you drive in a carpool, any money you get from passengers is considered reimbursement for your expenses, not income. If you drive with a service like Uber or Lyft, however, you’ll pay taxes on that income as an independent contractor.

There are a few more untaxables, but they get pretty particular.

Bottom line: You’ll pay taxes on pretty much any money you bring in — including the stuff you get from survey sites and other apps.

If you want to keep your taxable income low, make sure you claim as many deductions as possible.

Contributor Dana Miranda is a Certified Educator in Personal Finance® who has written about work and money for publications including Forbes, The New York Times, CNBC, Insider, NextAdvisor and Inc. Magazine. Contributor Larissa Runkle added additional reporting.

This article contains general information and explains options you may have, but it is not intended to be investment advice or a personal recommendation. We can’t personalize articles for our readers, so your situation may vary from the one discussed here. Please seek a licensed professional for tax advice, legal advice, financial planning advice or investment advice.




4 Student Loan Repayment Options — and How to Choose the Right One for You

Choosing a Student Loan Repayment Option

It’s never too early to think about student loan repayment. Whether you just started college, or you recently graduated and are still in the ‘grace period’ before repayment, strategizing now may help you find a student loan repayment plan that works for you before making you make a single payment.

If you’re graduated, working, and already making payments, it can be easy to overlook the other choices. But you can make changes to your student loan repayment plan even if you’re not in a financial crunch.

It’s also a good idea to re-evaluate your repayment plan over time. As your financial circumstances change, the way you want to manage your student loans may shift.

Before considering your options, take inventory of all your student loans. Be sure to list out the principal, the interest rate, the repayment period, and the servicer for each loan.

All federal student loans issued in recent years have fixed interest rates, but private student loans or older federal student loans may have variable rates. If the rate is variable, be sure to note that as well.

Different Student Loan Repayment Options

Once you understand your student loans, it’s time to think about your repayment options. The effortless choice is to do nothing and just pay your bills as they come.

Simply put, it means you pay back your student loan(s) under the interest rate and terms you agreed to when you initially signed the paperwork. For federal student loans, this is formally called the Standard Repayment Plan, and it typically means paying a fixed amount every month for up to 10 years.

There’s no “standard repayment plan” for private student loans; the interest rate may vary based on market factors, and your repayment term might be shorter or longer.

The federal government also offers graduated and extended repayment plans for borrowers. A graduated repayment plan means that the payment starts smaller and grows over time, while the extended repayment plan stretches repayment over a period of up to 25 years and payments may be either fixed or graduated.

There’s nothing wrong with opting for the Standard Repayment Plan — except that for some borrowers, it’s not the most cost-effective choice. Some borrowers may be able to find a more competitive interest rate by refinancing their loans through private lenders.

Others may be eligible for special federal programs that can reduce the amount owed monthly based on financial circumstances, and in some cases, forgive balances if you meet certain requirements.

Here’s an overview of repayment options that may help if you are choosing a repayment plan:

1. Student Loan Consolidation

Federal student loan consolidation allows you to combine multiple federal student loans into a single new loan. You can’t consolidate private student loans using this federal program.

When you consolidate your federal student loans into a Direct Consolidation Loan, it doesn’t necessarily reduce your overall interest rate.

Your new loan’s interest rate will be the weighted average of all the old student loans’ interest rates, rounded up to the nearest eighth of a percent. This means your interest rate might actually be slightly higher than the rate you were paying before consolidation on some of your student loans.

When you consolidate, you’ll also have the option to select a new repayment plan. The Standard plan would still be available, but consolidation can also be a first step toward other plans of action, like loan forgiveness or income-driven repayment.

2. Student Loan Forgiveness

Some federal student loans, and Direct Consolidation Loans, are eligible for modified payment plans that forgive outstanding student loan balances.

Health care professionals, teachers, military service members, and those employed full-time by qualifying nonprofit or public service organizations may be eligible for certain federal student loan forgiveness programs.

Some types of student loan forgiveness aren’t completely free, however. Federal student loan balances forgiven under income-driven repayment plans may be considered income by the IRS, meaning that you might need to pay taxes on that amount.

Those taxes might still be less than paying the forgiven principal amount, but it can be an unpleasant surprise at tax time if you’re not prepared.

One notable exception is the Public Service Loan Forgiveness (PSLF) program. After 10 years of payments on a qualified income-driven repayment plan, those who have worked for qualified employers, such as the government or some nonprofit agencies, can apply for forgiveness of all of their remaining federal student loan balances.

That forgiveness is not considered taxable income.

The Federal Student Aid website has additional information on which federal student loans qualify for which types of forgiveness, cancellation, and/or discharge.

3. Income-Based Repayment

If the payments under the Standard Repayment Plan seem too daunting, federal student loans offer a variety of income based repayment plans, which tie the amount you pay to the discretionary income you earn.

These income-driven repayment plans come in a variety of flavors and configurations, but an important takeaway is that, in many cases, you may end up paying more over the life of the loan than you would have on the Standard Repayment Plan.

That’s because, with low monthly payments that stretch out over more years, you could be paying more in interest over time. If your balance is high, your lower, income-adjusted monthly payments may not even be covering the interest that accompanies the principal (the set amount of money you’re given when you take out the loan). So rather than shrinking, your student loan balances could be growing over time as unpaid interest accumulates.

The upside is that if your job situation is less defined and you know you’ll need to tap the reduced payment rates these plans provide, choosing an income-driven repayment plan makes that possible.

Additionally, you’re still able to qualify for some student loan forgiveness programs if the rest of your student loans aren’t paid off after 20 to 25 years of consistent, on-time payments. However, again, it’s worth keeping in mind that you might be on the hook to pay income taxes on the remaining loan amount that is forgiven, depending on the repayment plan you qualify for.

4. Student Loan Refinancing

Refinancing student loans through a private lender offers the opportunity to consolidate multiple student loans into a single payment and potentially decrease your interest rate.

Loan repayment terms vary based on the lender, and terms and interest rates are often more favorable for those with better credit and earning potential (among other financial factors that vary by lender).

For potential borrowers with an interest in saving money over the life of their student loan, refinancing can provide overall value by offering market interest rates.

One important thing to know about refinancing, however, is that once you refinance a federal student loan into a private loan, you can’t undo that transaction and later consolidate back into a federal Direct Consolidation Loan.

This can be relevant for professionals in health care or education where federal student loan forgiveness plans are offered, or for those considering long-term employment in the public sector.

Further, refinancing federal student loans with a private lender renders them ineligible for important borrower benefits and protections, like income-driven repayment and deferment.

Can You Change Your Student Loan Repayment Plan?

If you have federal student loans, it is possible to change your repayment plan at anytime, without any fees. You’ll have the option to choose from any of the federal repayment plan options, including income-driven repayment plans.

There is less flexibility to change the terms of a private student loan. Some private lenders may offer alternative payment plans for borrowers. Check with your lender directly to see what options may be available to you.

SoFi Student Loan Refinancing

Refinancing is another avenue that can result in a new repayment plan. An important consideration, refinancing federal student loans will remove them from any federal programs or protections, so this won’t be the right choice for everyone.

If you’re considering refinancing, take a look at SoFi. Potential borrowers can find out what rates they pre-qualify for in just a few minutes and there are no fees, including origination fees or application fees.

The Takeaway

Federal student loan borrowers have the ability to change their repayment plan at any time, without being charged any fees. The options to change your repayment plan is a bit more challenging for private student loans, though some private lenders may offer alternative options for borrowers. Refinancing is another option that can allow borrowers to adjust their repayment terms.

SoFi offers refinancing loans that are free of any fees and potential borrowers can apply entirely online.

Which student loan repayment plan makes the most sense for you? Consider refinancing with SoFi as an option that could potentially save you money.


What student loan repayment options are available to me?

Borrowers with federal student loans can choose from any of the federal repayment plans, including the standard 10-year repayment plan, or income-driven repayment options. For private student loans, repayment options will be determined by the lender.

What is a standard repayment plan for student loans?

The standard repayment plan for federal student loans is fixed monthly payments over a period of 10 years. For consolidation loans, repayment may extend up to 30 years.

How long is a typical student loan repayment?

The typical student loan repayment period may vary from individual to individual. The standard repayment plan for federal loans is 10 years, but income-driven repayment plans or Direct Consolidation loans may have a longer term.

The repayment terms for private student loans vary by lender.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see

SoFi Student Loan Refinance
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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.


How to Calculate Federal Income Tax – Rates Table & Tax Brackets

@media (max-width: 1200px) body .novashare-buttons.novashare-inline .novashare-button-icon width: 100%; .novashare-inline .novashare-button .novashare-button-block background: #000000; .novashare-inline .novashare-button .novashare-border border-color: #000000; .novashare-inline .novashare-button .novashare-inverse color: #000000;

Additional Resources

In the United States, the amount of tax you owe depends on several factors, one of them being how much money you make each year.

The U.S. tax code is based on a progressive tax system. That means everyone pays a percentage of their income to the federal government, but higher-income filers pay a higher percentage. In theory, this system distributes the individual income tax burden more heavily onto those who have more and thus are more able to contribute. Likewise, it shifts the burden away from those who can’t afford as much.

Over time, tax deductions, credits, and loopholes have modified and complicated our tax laws. However, the basics aren’t overly complex. The U.S. income tax system uses a relatively simple series of stepped income tax rates to determine how much you owe.

How Much You’re Taxed

Your total federal income tax owed is based on your adjusted gross income (AGI). When you complete your Form 1040 and its attached schedules, you enter all your income from various categories, such as wages, interest and dividends, and business income. Then, you take various ”above-the-line” deductions, such as contributing to an IRA or paying student loan interest. These deductions reduce your gross income to arrive at your AGI.

You use your AGI to determine your eligibility for certain tax breaks, but it’s not your taxable income. From AGI, you deduct either the standard deduction or itemized deductions to arrive at your taxable income.

How Much You Owe

After you figure out your taxable income, you can determine how much you owe by using the tax tables included in the Form 1040 Instructions. Though these tables look complicated at first glance, they’re actually quite straightforward. You simply look up your income, find the column with your filing status (single, married filing jointly, married filing separately, or head of household), and the intersection of those two figures is your tax.

For simplicity’s sake, the tax tables list all income over $3,000 in $50 chunks. The tables only go up to $99,999, so if your income is $100,000 or higher, you must use a separate worksheet (found in the Form 1040 Instructions) to calculate your tax.

To illustrate, let’s say your taxable income (Line 15 on Form 1040) is $41,049. Using the tables, you’d go to the 41,000 section and find the row applicable to incomes between $41,000 and $41,050. Then, you can easily find the tax you owe:

  • $4,774 for single filers
  • $4,525 for married couples filing jointly
  • $4,774 for married couples filing separately
  • $4,639 for heads of household

Federal Income Tax Brackets

Tax tables show the total amount of tax you owe, but how does the IRS come up with the numbers in those tables? Perhaps the most important thing to know about the progressive tax system is that all of your income may not be taxed at the same rate.

2021 Tax Brackets

Income tax brackets for the 2021 tax year (tax returns filed in 2022) are as follows:

Rate Single,
Taxable Income Over
Married Filing Jointly,
Taxable Income Over
Married Filing Separately,
Taxable Income Over
Head of Household,
Taxable Income Over
10% $0 $0 $0 $0
12% $9,950 $19,900 $9,950 $14,200
22% $40,525 $81,050 $40,525 $54,200
24% $86,375 $172,850 $86,375 $86,350
32% $164,925 $329,850 $164,925 $164,900
35% $209,425 $418,850 $209,425 $209,400
37% $523,600 $628,300 $314,150 $523,600

For most people, the first dollar they earn in a year is taxed at a lower rate than the last dollar they earn. Think of it this way: Picture seven buckets representing the seven tax brackets. You’re a single taxpayer, and as you start earning money at the beginning of the year, your income starts filling the first bucket, representing the 10% tax bracket.

Once your income reaches $9,950 (the beginning of the 12% bracket), your income spills over into the 12% bucket. Once you get to $40,525, it spills over into the 22% tax bracket bucket, and so on.

At tax time, all the money in the first bucket is taxed at 10%, money in the second bucket is taxed at 12%, and money in the third bucket is taxed at 22%. If you have more than $523,600 in income for 2021, your income will have spilled into all seven buckets, but only the money sitting in the last bucket is taxed at the highest federal income tax rate of 37%.

Using the brackets above, you can calculate the tax for a single person with a taxable income of $41,049:

  • The first $9,950 is taxed at 10% = $995
  • The next $30,575 is taxed at 12% = $3,669
  • The last $5,244 is taxed at 22% = $115

In this example, the total tax comes to $4,779. You’ll note that this is a little higher than the $4,774 the tax tables told you you’d owe. The numbers don’t always add up perfectly. However, what’s in the tax tables is what the IRS legally determines you owe, and that trumps any detailed calculations you do.

Marginal Tax Brackets

The highest tax bracket that applies to you is called your marginal tax bracket. It’s the one bracket you cross into but don’t make it out of by the end of the year. Since you don’t hit the maximum in this bracket, this is the percentage you should keep your eye on. 

For example, say you’re a single taxpayer earning a salary of $51,200. You have no pretax withdrawals, such as a 401(k), or above-the-line adjustments to reduce your adjusted gross income, and you claim the standard deduction rather than itemize. Your taxable income would be $38,650 ($51,200 minus the standard deduction of $12,550). That’s the 12% tax bracket, but it’s only $1,875 away from the 22% tax bracket.

Now, let’s say you earned $200 of interest income from your savings, received a bonus of $500 from your regular job, and earned $1,800 from a side business. That’s $2,500 in additional income for the year. Of that, $1,875 would be taxed at 12%, and the remaining $625 would be taxed at 22%.

Simply put, the more money you make, the less (as a percentage) you get to keep if that additional income pushes you into a higher tax bracket.

How to Stay in a Lower Tax Bracket

You can reduce your tax bill with tax deductions and tax credits. Another way to reduce your taxable income, and thus stay in a lower tax bracket, is with pretax deductions.

A pretax deduction is money your employer deducts from your wages before withholding money for income and payroll taxes. Some common deductions are:

Returning to the example above, let’s say you decide to participate in your employer’s 401(k) plan and contribute $1,500 per year to your account. Now, your taxable income is $39,650 ($51,200 salary – $1,500 401(k) contribution + $2,500 in other income – $12,550 standard deduction). You remain in the 12% tax bracket while saving for retirement. It’s a win-win.

For 2021, you can contribute up to $19,500 to a 401(k) plan. If you’re age 50 or above, you can contribute an additional $6,500 in catch-up contributions, for a total of $26,000. In 2022, the contribution limit will increase to $20,500, or $27,000 if you’re age 50 or older.

If you’re self-employed or don’t have access to a 401(k) plan at work, you can still reduce your taxable income while saving for retirement by contributing to a traditional IRA or SEP IRA (SEP stands for “simplified employee pension”) through a broker or robo-advisor like SoFi Invest. These contributions reduce your AGI because they are above-the-line deductions (reported as adjustments to income on Schedule 1 attached to Form 1040).

For 2021, you can contribute up to $6,000 to a traditional IRA ($7,000 if you’re age 50 or older). The contribution limits are the same for 2022.

SEP IRAs allow self-employed people and small-business owners to put away much more. For 2021, you can contribute up to 25% of your net income, up to a maximum of $58,000. In 2022, that maximum increases to $61,000.

Final Word

Most people watch chunks of each paycheck disappear toward their tax liability throughout the year with little understanding of how much they may owe when all is said and done. Then, during tax season, they wait for an accountant or tax preparation software from a company like H&R Block to announce whether they’ll receive a refund or owe money to the IRS.

With a little understanding of the tax brackets, you can take the drama out of tax time, no complex mathematics required. This knowledge may even help you make smarter decisions about saving and investing.

.kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-table-of-content-wrappadding:30px 30px 30px 30px;background-color:#f9fafa;border-color:#cacaca;border-width:1px 1px 1px 1px;.kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-table-of-contents-titlefont-size:14px;line-height:18px;letter-spacing:0.06px;font-family:-apple-system,BlinkMacSystemFont,”Segoe UI”,Roboto,Oxygen-Sans,Ubuntu,Cantarell,”Helvetica Neue”,sans-serif, “Apple Color Emoji”, “Segoe UI Emoji”, “Segoe UI Symbol”;font-weight:inherit;text-transform:uppercase;.kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-table-of-content-wrap .kb-table-of-content-listcolor:#001c29;font-size:14px;line-height:21px;letter-spacing:0.01px;font-family:-apple-system,BlinkMacSystemFont,”Segoe UI”,Roboto,Oxygen-Sans,Ubuntu,Cantarell,”Helvetica Neue”,sans-serif, “Apple Color Emoji”, “Segoe UI Emoji”, “Segoe UI Symbol”;font-weight:inherit;.kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-table-of-content-wrap .kb-table-of-content-list .kb-table-of-contents__entry:hovercolor:#16928d;.kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-table-of-content-list limargin-bottom:7px;.kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-table-of-content-list li .kb-table-of-contents-list-submargin-top:7px;.kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-toggle-icon-style-basiccircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-toggle-icon-style-basiccircle .kb-table-of-contents-icon-trigger:before, .kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-toggle-icon-style-arrowcircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-toggle-icon-style-arrowcircle .kb-table-of-contents-icon-trigger:before, .kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-toggle-icon-style-xclosecircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-toggle-icon-style-xclosecircle .kb-table-of-contents-icon-trigger:beforebackground-color:#f9fafa;

Since 2017, Masterworks has successfully sold three paintings, each realizing a net anualized gain of +30% per work. (This is not an indication of Masterworks’ overall performance and past performance is not indicative of future results.)

Janet Berry-Johnson is a Certified Public Accountant. Before leaving the accounting world to focus on freelance writing, she specialized in income tax consulting and compliance for individuals and small businesses. She lives in Omaha, Nebraska with her husband and son and their rescue dog, Dexter.


What is Earned Income Tax Credit and How to Qualify

At tax time, most of us have a similar goal: minimize our liability, and maybe even get some money back in the process. The Earned Income Tax Credit, or EITC, is a tax incentive that might be able to help.

You may be eligible for the EITC if you earned a relatively low income in the previous tax year — especially if you have children. In this article, we’ll explore exactly how to qualify, how much credit you can get, and how to claim it on your tax return. Then we’ll follow up with some frequently asked questions about the Earned Income Tax Credit.

What Is Earned Income Tax Credit?

The Earned Income Tax Credit (EITC) is a refundable tax credit available for low- to moderate-income individuals and families — especially those with children. The EITC is claimed when you file your tax return. The maximum amount available for 2021 taxes is $6,728, though the amount of credit you’ll receive depends on income, filing status, and how many qualifying children you have.

The EITC is a credit, not a deduction, which means it directly reduces the tax dollars you owe. A deduction, on the other hand, reduces how much of your income is subject to taxation. In practice, this means it’s even better than a tax deduction in most cases, and could substantially lower your tax liability or get you a bigger refund.

Who Qualifies for the Earned Income Tax Credit?

The basic qualification for the EITC is simple, but as with all things IRS, there are lots of nitty-gritty specifics that can make or break your eligibility. The first requirement is right there in the name: you must have earned income. You’ll also need to:

  • Have a Social Security number.
  • Have been a U.S. citizen or resident alien for the entirety of the tax year in question.
  • Be at least 25 years old, but not over 65.

If you don’t have children, you may be eligible based solely on a low income. In the 2021 tax year, you’ll need to have earned an adjusted gross income, or AGI, of:

  • Less than $21,430 as a single filer.
  • Less than $27,380 for married couples filing jointly.

Otherwise, the income limits depend on the number of children you have — and the children must meet all qualifications, which include age and residency requirements, and a Social Security number of their own.

2021 Income Limits for Earned Income Tax Credit

Number of Children Single or Head of Household Married Filing Jointly
No qualifying children $21,430 $27,380
1 qualifying child $42,158 $48,108
2 qualifying child $47,915 $53,865
3+ qualifying child $51,464 $57,414

Additionally, there are some special rules for military and clergy members, as well those who earn select types of disabilities benefits. If you fall into one of these categories, definitely check out the links — these rules will help you determine whether certain monies can be claimed as earned income and applied toward eligibility credit.

How Much Can You Get From the Earned Income Tax Credit?

Although individuals without children have always qualified for a small earned income credit, it’s typically been much less than what’s offered for those with children. The 2021 tax year is different in that this amount has been increased dramatically to help with COVID-19 relief.

Maximum EITC Based on Number of Children

Number of Children Maximum EITC Amount
0 $1,502
1 $3,618
2 $5,980
3+ $6,728

The amount of credit being offered to individuals and families with no children is going back down for the 2022 tax year. The American Rescue Plan Act, which was designed to help alleviate the burden imposed by COVID-19, temporarily increased the EITC for those without children, but this increase will not carry over to the 2022 tax year (as of the time of this writing).

How to Get the Earned Income Tax Credit

If you’re eligible for the Earned Income Tax Credit and ready to see its effect on your return, the first thing you need to do is to file a tax return. You’ll need to do this even if you don’t owe any taxes or are not otherwise required to file — there’s no other way to claim the credit.

You can use U.S. tax forms 1040 or 1040-SR to claim the Earned Income Tax Credit if you don’t have qualifying children, but if you do have children, you’ll need to include Schedule EITC with your 1040. You can also gather all the necessary documentation and have a tax professional do the paperwork for you, or take advantage of the IRS online Free File tool.

Frequently Asked Questions (FAQs) about the Earned Income Tax Credit

You’ve got questions about the Earned Income Tax Credit, don’t worry — we’ve got answers.

What is the Earned Income Tax Credit and How Does it Work?

The Earned Income Tax Credit (EITC) is a credit offered to individuals and families that earned a low income during the previous tax year. The amount of credit offered is determined by your filing status (single or married filing jointly) and the number of children you have — generally, the more kids you have, the larger the credit you’ll be eligible for.

What is an Example of Earned Income Tax Credit?

Since the EITC is a credit, rather than a deduction, it comes directly off your tax liability. In other words, if you are getting back $2,000 and get an Earned Income Tax Credit of $2,000, you would receive a total refund of $4,000.

What are the Qualifications for Earned Income Credit?

To qualify for the EITC for the 2021 tax year, you must:

  • Have earned an income under $57,414.
  • Have investment income below $10,000.
  • Have a valid Social Security Number.
  • Be a U.S. citizen or resident alien.
  • You can qualify for the EITC using any of the following tax filing statuses:

  • Married filing jointly
  • Head of household
  • Married filing separate
  • Qualifying widow or widower
  • Single
  • What Disqualifies You from Earned Income Credit?

    Several things can disqualify you from receiving EITC, including:

  • Earning more than $57,414.
  • Having investment income over $10,000.
  • Filing a Form 2555 with the IRS, which is related to foreign income.
  • There may be other disqualifying factors. If you’re not sure whether you qualify, it’s best to consult with a tax professional. The IRS has a Qualification Assistant tool to help determine your eligibility.

    Penny Hoarder contributor Dave Schafer has been writing professionally for nearly a decade, covering topics ranging from personal finance to software and consumer tech. Reporting by Jamie Cattanach is included in this story.




    When to Change Tax Withholdings — and How to Do It

    With tax season upon us, you might be wondering whether or not you’ll owe the government money. How much you owe or how much you’ll receive in a refund depends a lot on your tax withholdings from your paychecks during the year.

    You’ve probably been dealing with withholdings since you were first employed, but many people still don’t know what that means. It’s vital to make sure you’re getting the right amount taken out so you’re not surprised by a bill at the end of year. And although your employer does the work of collecting the funds, it’s your job to ensure the amounts are right.

    Here’s what you need to know about tax withholdings, including when and how to adjust them.

    What Are Tax Withholdings?

    Tax withholdings are the wages your employer sets aside for the purpose of paying federal and state income taxes. In short, it’s money you earn that you never see because it’s funneled directly into Uncle Sam’s hands.

    Tax withholdings are determined by IRS Form W-4, which you fill out when you start a new job or when you want to adjust your withholdings — which we’ll get to in just a moment. You can see the exact dollar amount of your tax withholdings on your pay stub each pay period, and you can adjust your withholdings by submitting a new W-4 as often as you wish.

    How Are Tax Withholdings Calculated? 

    Your employer calculates your tax withholdings based on your responses to the W-4 Form. The W-4 form was redesigned in 2020 to help people more accurately calculate their federal income tax withholdings. The IRS mandates this new form for new employees, but if it’s been a couple years since you’ve submitted a W-4, your withholding might still be calculated based on the old form.

    If you haven’t updated your W-4 recently, check out the box below for how the W-4 has changed.

    New W-4 Forms 2020

    The W-4 (Employee’s Withholding Allowance Certificate) was redesigned in 2020 to make it easier to use and to complement the new 2018 tax laws.

    The new W-4 Form removes withholding allowances — so there’s no more calculating 0s and 1s to understand your tax withholding. The new design is divided into five parts, designed for accuracy and ease of use. Here is what you need to provide:

    • Personal information
    • Multiple Jobs or Spouse Works
    • Claim Dependents
    • Other Adjustments
    • Your signature

    Sections 1 and 5 are required, but you fill out 2 through 4 only if they apply to your specific situation. For the most part, this form makes things straight-forward and you just fill out as you go along, but things can get a little complicated if you have multiple incomes or want to file your own individualized deduction. There are forms and worksheets for each calculation, but we particularly love the simplicity of using the IRS’s tax withholding calculator tool to help figure out any difficult steps.

    Use IRS Withholding Calculator Tool

    The simplest way to figure out how much should be exiting your paycheck each month is the IRS’s tax withholding calculator tool. But if you’re interested in the nitty gritty of how your employer should approach it, here are the basics of how your employer calculates your withholding.

    Using the information from your W-4, your employer calculates your taxable income and then references the appropriate tax table. From there, employers can calculate withholdings through the percentage method or the wage bracket method.

    The wage bracket method is considered the simplest method because the IRS chart shows you the exact amount to withhold based on the employee’s taxable income, marital status, deductions, etc. The downside is that the bracket method is manual and only covers incomes less than $100,000.

    Because of that, the percentage method is the most common withholding method because it coincides with companies’ automatic payroll systems and works for any wage.

    The percentage method is based on the tax rates as shown in the table below.

    Wage Brackets at a Glance for 2021 Tax Season

    Tax Rate Single Head of Household Married Filing Jointly or Qualifying Widow Married Filing Separately
    10% $0 to $9,950 $0 to $14,200 0 to $19,900 $0 to $9,950
    12% $9,951 to $40,525 $14,201 to $54,200 $19,901 to $81,050 $9,951 to $40,525
    22% $40,526 to $86,375 $54,201 to $86,350 $81,051 to $172,750 $40,526 to $86,375
    24% $86,376 to $164,925 $86,351 to $164,900 $172,751 to $329,850 $86,376 to $164,925
    32% $164,926 to $209,425 $164,901 to $209,400 $329,851 to $418,850 $164,926 to $209,425
    35% $209,426 to $523,600 $209,401 to $523,600 $418,851 to $628,300 $209,426 to $314,150
    37% $523,600 or more $523,600 or more $628,300 or more $314,151 or more

    Source: IRS

    So if you’re single and you made $44,000 in 2021, your income places you in the 22% tax rate. You would own $4,807.50 plus 22% of the excess over $41,775. This would come to a total of $5,296.50 of withholdings to cover your federal income tax this year.

    This withholding would be divided up across your paychecks for the year. So if you receive biweekly paychecks, then each paycheck would have around $203.70 withheld to cover your taxes.

    It’s your employer’s responsibility to withhold this money for you, but we think it’s always a good thing to be informed. Again, the IRS tax withholding calculator tool can help you get a general idea of how much money will be withheld.

    When to Adjust Your Tax Withholdings

    Filing new tax paperwork is nobody’s favorite pastime — except maybe if you’re a CPA. (Probably not for them, either, though.)

    But keeping your tax withholdings up to date is the best way to ensure you’re paying the proper amount in taxes, which can help you avoid underpayment penalties and also keep as much of your money as possible in your pocket.

    Here are three scenarios in which you’ll want to adjust your tax withholdings.

    1. You Get a New Job

    If you change jobs entirely, you probably won’t have to think about filing a new W-4 — your friendly HR rep will simply slide one across the table. But if you start working multiple jobs, take note: You can’t claim the same allowances twice, so you’ll likely need to go back into your original job’s W-4 and make adjustments.

    2. You Go Through a Major Life Change

    If any of the following scenarios apply, it may be time to change your tax withholdings.

    Having a child increases your number of dependents by one. Congratulations! We know you’re busy, but try to find time to file a new W-4. Maybe during naptime.

    Getting married can change your filing status, particularly if you plan on filing your taxes jointly. Depending on your new spouse’s income, your overall household tax rate may increase or decrease. The same goes for if you get divorced.

    Buying a house can reduce your overall tax liability since most mortgage interest and property taxes are deductible. You’ll save money throughout the year if you adjust your W-4 immediately rather than waiting until Tax Day to inform the government about your new digs.

    Earning non-wage income, like side hustle cash or investment gains, can affect your tax status — so if you start a rental property business or you’re making bank by driving for Uber on your off hours, you’ll need to check your W-4.

    3. You Get a Hefty Refund — or Owe Uncle Sam

    As nice as it is to see that pre-summer windfall, getting a refund basically means you’ve given the government a yearlong interest-free loan. You could have been putting that money to better use yourself during that time, particularly if you invested it and let it grow.

    On the flip side, if you find out you owe money at tax time, adjusting your withholdings might keep you from desperately scrounging in the couch for spare change during your spring cleaning spree.

    Need a cheat sheet? The IRS provides a handy tax withholding calculator tool, which can tell you whether your forms are in need of an adjustment. It’ll only take a few minutes, but you’ll want to gather your recent pay stubs and last year’s tax return before you get started.

    How to Adjust Your Tax Withholdings

    If you’ve determined you do need to adjust your tax withholdings, all you need to do is file a new W-4 with your employer. Many companies keep all their tax forms and documentation online, so you might not even have to put pen to paper.

    Contact your employer’s HR department (or whoever’s in charge of tax documents and compliance) for specific instructions. And if your adjustments do mean you get to keep more of your paycheck, don’t just blow it! Use it to start an emergency fund, or stick it in an interest-accruing retirement account for later.

    Contributor Whitney Hansen writes for The Penny Hoarder on personal finance topics including banking and investing. Reporting from former contributor Jamie Cattanach is included in this report.




    7 Rules for Taking a Work From Home Tax Deduction

    If you’re one of the millions of people who worked remotely in 2021, you may be wondering whether that means a sweet deduction at tax time. Hold up, though: The IRS has strict rules for taking the home office deduction.


    7 Essential Rules for Claiming a Work From Home Tax Deduction

    Thinking about claiming a home office deduction on your tax return? Follow these tips to avoid raising any eyebrows at the IRS when you file your 2021 tax return, which is due on April 18, 2022.

    1. You can’t claim it if you’re a regular employee, even if your company is requiring you to work from home due to COVID-19.

    If you’re employed by a company and you work from home, you can’t deduct home office space from your taxes. This applies whether you’re a permanent remote worker. It also applies if your office was temporarily closed in 2021 because of the pandemic. The rule of thumb is that if you’re a W-2 employee, you’re not eligible for a work-from-home tax deduction.

    This wasn’t always the case, though. The Tax Cuts and Jobs Act of 2017 suspended the deduction for miscellaneous unreimbursed employee business expenses, which allowed you to claim a home office if you worked from home for the convenience of your employer, provided that you itemized your tax deductions. The law nearly doubled the standard deduction. As a result, many people who once saved money by itemizing now have a lower tax bill when they take the standard deduction.

    2. If you have a regular job but you also have self-employment income, you can qualify.

    If you’re self-employed — whether you own a business or you’re a freelancer, gig worker or independent contractor — you probably can take the deduction, even if you’re also a full-time employee of a company you don’t own. It doesn’t matter if you work from home at that full-time job or work from an office, as long as you meet the other criteria that we’ll discuss shortly.

    You’re only allowed to deduct the gross income you earn from self-employment, though. That means if you earned $1,000 from your side hustle plus a $50,000 salary from your regular job that you do remotely, $1,000 is the most you can deduct.

    3. It needs to be a separate space that you use exclusively for business.

    The IRS requires that you have a space that you use “exclusively and regularly” for business purposes. If you have an extra bedroom and you use it solely as your office space, you’re allowed to deduct the space — and that space alone. So if your house is 1,000 square feet and the home office is 200 square feet, you’re allowed to deduct 20% of your home expenses.

    But if that home office also doubles as a guest bedroom, it wouldn’t qualify. Same goes for if you’re using that space to do your day job. The IRS takes the word “exclusively” pretty seriously here when it says you need to use the space exclusively for your business purposes.

    To avoid running afoul of the rules, be cautious about what you keep in your home office. Photos, posters and other decorations are fine. But if you move your gaming console, exercise equipment or a TV into your office, that’s probably not. Even mixing professional books with personal books could technically cross the line.

    A man works from home while watching his daughter.
    Getty Images

    4. You don’t need a separate room.

    There needs to be a clear division between your home office space and your personal space. That doesn’t mean you have to have an entire room that you use as an office to take the deduction, though. Suppose you have a desk area in that extra bedroom. You can still claim a portion of the room as long as there’s a marker between your office space and the rest of the room.

    Here’s an easy way to separate your home office from your personal space, courtesy of TurboTax Intuit: Mark it with duct tape.

    5. The space needs to be your principal place of business.

    To deduct your home office, it needs to be your principal place of business. But that doesn’t mean you have to conduct all your business activities in the space. If you’re a handyman and you get paid to fix things at other people’s houses, but you handle the bulk of your paperwork, billing and phone calls in your home office, that’s allowed.

    There are some exceptions if you operate a day care center or you store inventory. If either of these scenarios apply, check out the IRS rules.


    6. Mortgage and rent aren’t the only expenses you can deduct. 

    If you use 20% of your home as an office, you can deduct 20% of your mortgage or rent. But that’s not all you can deduct. You’re also allowed to deduct expenses like real estate taxes, homeowner insurance and utilities, though in this example, you’d only be allowed to deduct 20% of any of these expenses.

    Be careful here, though. You can only deduct expenses for the part of the home you use for business purposes. So using the example above, if you pay someone to mow your lawn or you’re painting your kitchen, you don’t get to deduct 20% of the expenses.

    You’ll also need to account for depreciation if you own the home. That can get complicated. Consider consulting with a tax professional in this situation. If you sell your home for a profit, you’ll owe capital gains taxes on the depreciation. Whenever you’re claiming deductions, it’s essential to keep good records so you can provide them to the IRS if necessary.

    If you don’t want to deal with extensive record-keeping or deducting depreciation, the IRS offers a simplified option: You can take a deduction of $5 per square foot, up to a maximum of 300 square feet. This method will probably result in a smaller deduction, but it’s less complicated than the regular method.

    7. Relax. You probably won’t get audited if you follow the rules.

    The home office deduction has a notorious reputation as an audit trigger, but it’s mostly undeserved. Deducting your home office expenses is perfectly legal, provided that you follow the IRS guidelines. A more likely audit trigger: You deduct a huge amount of expenses relative to the income you report, regardless of whether they’re related to a home office.

    It’s essential to be ready in case you are audited, though. Make sure you can provide a copy of your mortgage or lease, insurance policies, tax records, utility bills, etc., so you can prove your deductions were warranted. You’ll also want to take pictures and be prepared to provide a diagram of your setup to the IRS if necessary.

    As always, consult with a tax adviser if you’re not sure whether the expense you’re deducting is allowable. It’s best to shell out a little extra money now to avoid the headache of an audit later.

    Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected].