In another round of “Who’s Got the Better Campaign Promises” (and in a surprising moment of agreement), both Kamala Harris and Donald Trump have discussed eliminating taxes on tips… cue the sound of wait staff cheers everywhere.
Though, as with many political “best intentions,” the question stands on whether this would actually be helpful for those working in tip-heavy industries. Some say no.
But, until those things change, remember that any tips above $20/month that you receive are required by law to be reported as income, which means they’re also subject to federal income tax and payroll taxes.
And typically, those need to be handled by the 10th of each month. Yes, we’re past that day for August, but you can still get that information to your McMinnville employer… and should.
And if you need some more guidance on how to keep records and what requirements you have tax-wise, there’s always this page from the IRS… and of course, I’m happy to help with guidance on this as well.
There are a lot of new tools and trends emerging in the financial world these days. Take, for example, the rising use of third-party payment services like CashApp and Venmo. And the mobile banking app for your chosen banking institution. Chances are, you’re familiar with these options and are using one or all of them.
And there is everyday financial technology that goes even further. One of them has cropped up and gained popularity in the past few years: neobanking. What is a neobank, you might ask? Let me explain…
What Is a Neobank and Why McMinnville People Might Consider One
“Banking is very good business if you don’t do anything dumb.” – Warren Buffet
Thanks to the global financial crisis of 2008, and failing banking institutions the past few years, people’s faith in the traditional bank is not what it once was.
When you were young, your parents went to the bank regularly to make deposits and withdrawals. They paid fees to the bank for keeping and processing their financial needs.
But a host of factors, including bank failures, rising inflation, and technological advancement might have you looking for an alternative these days.
Enter neobanks.
What is a neobank?
Neobanks, like Chime and Revolut, are fintech companies offering banking services entirely through mobile apps and desktops. Unlike traditional banks, neobanks operate without physical branches, allowing them to provide features to you like low-cost credit, cash-back rewards, high-yield savings accounts, and even investing products.
As of 2022, there were close to 400 neobanks worldwide, and their popularity continues to grow.
The benefits of neobanking
Besides asking, What is a neobank? you should also be asking, What’s the big appeal? Well, for one, thanks to their digital-only nature, neobanks generally have lower fees on banking accounts and ATM usage.
Neobanks also offer higher interest rates on savings than a traditional bank and offer services like early paycheck access, instant spending notifications, and even budgeting tools.
And… one of the biggest advantages of a digital-only “bank” is that it’s all wrapped up in a modern design with easy-to-use interfaces. A well-designed app usually makes you want to use it more.
But, as appealing as that all sounds, there are plenty of concerns with them too.
Exercising caution
As we’ve seen repeated in the past few years, banks fail. But, if the bank is FDIC insured, then account holders have some comfort that they’ll be able to get their funds covered (up to 250K). Most traditional banks are FDIC-insured.
Neobanks, on the other hand, don’t have that same assurance for their users.
FDIC insurance applies if a neobank’s partner bank fails, but not if the neobank itself does. And even then, they’re covered only if the neobank has kept accurate records of customer funds deposited at the partner bank.
So, it’s crucial to verify that your deposits are protected if you do decide to go the neobanking route. If you’re not sure, check the neobank’s website for details. You can also use the FDIC’s BankFind tool to confirm that is the case.
What happens if a neobank goes bust?
Because banks and neobanks do actually fail, knowing what happens when they do is something you need to understand from the outset.
Take Synapse Financial, for example, which connected banking apps like Yotta to real banks. In April 2024, they declared bankruptcy, which left millions of Americans unable to access their funds when Evolve Bank and Trust disconnected from Synapse. Yotta, the largest affected banking service, saw more than 100 million in customer funds locked up across hundreds of thousands of accounts.
There are even heartbreaking Reddit boards for Yotta account holders about dire financial straits.
Keep this reality in mind if you do open a neobank account. If the institution fails, it could mean a bumpy ride to getting your account funds back in your hands. You might have to wait for bankruptcy proceedings or lose access to your funds temporarily (or long-term). And you might not always get back all your funds.
Bottom line: Check the bank’s customer service policies. How will they handle things with you if their business fails? Make sure you understand the risks of mobile-forward banking and have a plan in place if failure does occur.
Here are some good questions to ask yourself to decide if a neobank account is right for you.
- Does it bother you if it’s not a real bank (read: doesn’t have the FDIC insurance guarantee)?
- Are you comfortable doing your banking mostly on an app, meaning limited access to cash and checking services?
- Does the neobank have good customer service options, and are they easily reachable with clear guidelines on how they handle things?
- Would a neobank improve your banking – give you a better interest rate on savings, give you access to direct deposit funds early, etc.?
- What do others (especially current and past customers) say about the neobank?
Neobanks are revolutionizing how we manage our money, offering greater convenience and lower costs. They provide smart, tech-forward options tailored to fit your lifestyle. But as with any financial product, it’s important to do your homework first.
If you have any questions beyond What is a neobank? or want to discuss how these tools might fit into your overall financial strategy, it’s important that you sit down with a trustworthy Yamhill County advisor with whom you can talk it through.
I can help point you in the right direction. Beyond that, if you want to discuss anything related to your tax situation this year, feel free to nab a time on my calendar.
Make smart financial decisions,
Lisa Heckman
