Tag: COVID-19

Enhanced Child Tax Credit for 2021

Tax rule changes in recently-passed Congressional bills in response to the pandemic are head-spinning. Overall, these changes provide targeted financial support and tax relief for people who have suffered financial hardship because of COVID-19. The IRS just came out with guidance on one of these changes, an enhanced Child Tax Credit. Temporary changes to the Child Tax Credit are intended to provide relief to taxpayers with eligible dependent children and bridge the financial gap until the American economy recovers.

The enhanced Child Tax Credit is part of the $1.9 trillion American Rescue Plan that President Joe Biden signed into law in March 2021. Formally called Child Tax Credit Improvements for 2021, families need to know about its valuable provisions:

  • Child Tax Credit increases are in effect for 2021 only.
  • The Child Tax Credit is increased from $2,000 to $3,000 per eligible child, for children who are age 6 and older.
  • For children under the age of 6, the Child Tax Credit is increased to $3,600 per eligible child.
  • The age for qualifying children has also been increased from children under age 17 to children under age 18. This change allows more children to be considered eligible for the Child Tax Credit.
  • The Child Tax Credit is fully refundable, meaning that eligible taxpayers could receive a tax refund that exceeds her or his tax federal withholding.
  • Income limitations for the Child Tax Credit remain at $200,000 for single taxpayers and $400,000 for married filing joint. The income limitation for the Additional Child Tax Credit is phased out by $50 for every $1,000 of modified adjusted gross income more than the threshold (e.g., $150,000 married filing joint).
  • Advance payments of one-half of the eligible Child Tax Credit will be issued in equal periodic payments from July to December 2021. Any eligible Child Tax Credit not paid in advance will be received when the taxpayer files her or his 2021 income tax return.

Guidance on the new tax rules for the enhanced Child Tax Credit is fresh off the presses. The IRS plans to post more information on its website (www.irs.gov), along with a portal for taxpayers to change personal information that may impact the amount of the advance payments, like the birth of a child or a change in which separated or divorced parent claims the child as an eligible dependent. 

These enhancements to the Child Tax Credit for 2021 are temporary. Knowing the valuable rule changes can help to bridge the financial gap for many American families.

Expanded Educator Deduction for COVID-19 Safety

The educator deduction for out-of-pocket classroom expenses started as a temporary tax law provision in 2002. Primary and secondary schoolteachers could deduct up to $250 of the unreimbursed cost of books, supplies, computer equipment, and supplementary materials used in the classroom. In 2015, the deduction was made permanent. In 2016, the deduction was expanded to cover professional development expenses and was indexed for inflation.

Even with indexing for inflation and before the pandemic, $250+ a year did not put much of a dent in teacher spending. COVID-19 safety needs have made classroom expenses spike, just like other work environments. In June 2020, AdoptAClassroom.org surveyed U.S. educators to ask about classroom expenses during distance learning. It was not shocking to learn that teachers spent an average of $745 for classroom supplies in the 2019-20 school year. Almost half of the responding teachers reported spending more because of distance learning. 

The COVID-related Tax Relief Act of 2020 expanded the educator deduction further to help teachers afford the challenges of distance learning and returning to the classroom. Here’s what you need to know about the expanded educator deduction:

  • Who is Eligible for the Deduction?

You’re an eligible educator if, for the tax year you’re a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide for at least 900 hours during the school year. Services must be performed in a school that provides elementary or secondary education as determined under state law.

  • What Safety Items Qualify?

COVID-19 protective items include, but are not limited to face masks, disinfectant, hand soap and sanitizer, disposable gloves, physical barriers like clear plexiglass, air purifiers, and other items recommended the Centers for Disease Control and Prevention for the prevention of the spread of COVID-19.

  • When Can Safety Items be Included?

Qualified expenses include the amounts that you pay or incur after March 12, 2020, for personal protective equipment, disinfectant, and other supplies used for the prevention of the spread of coronavirus. The deduction is for expenses paid or incurred during 2020 are deductible on your 2020 federal tax return.

Still not sure if you or someone that you know is eligible for the expanded educator deduction for COVID-19 safety items? Read more details at https://www.irs.gov/taxtopics/tc458.

IRS Notices Resume for the Holidays

Just in time for the holidays, the IRS announced that it will resume issuing “balance due” notices to taxpayers. IRS Notices to taxpayers who have unpaid tax balances were suspended temporarily in early May due to the COVID-19 pandemic that created incredible delays in receiving and processing IRS mail. The IRS feels that their mailroom is caught up now and that all payments that taxpayers mailed in have been processed. So, they decided to re-start notifying taxpayers of their unpaid taxes, plus interest and penalties, of course.

Here’s what to know if you get an IRS Notice about unpaid tax balances:

Why the IRS sends Notices
The IRS sends Notices to taxpayers who have a balance due, or who the IRS hasn’t heard from them after a prior contact. IRS Notices explain why the amount is due and what the taxpayer’s options are. The urgency of each Notice escalates if prior Notices are ignored, up to placing a lien on assets or property. IRS Notices are usually multiple pages long and tedious to read, but they contain a lot of valuable information about the issue. So, read carefully.

How to Respond
IRS Notices generally require a response by a specific date. There are two main reasons you’ll want to meet that deadline – to minimize the accrual of additional interest and penalty charges, and to preserve your appeal rights if you don’t agree. If the information that the IRS has on file doesn’t match the information you reported on your tax return, you may need to complete the Notice Response Form and provide more documents to support the return. If you made a mistake, you need to pay up.

Payment Options
Taxpayers who are unable to pay are encouraged to consider available payment options to stop penalties and interest from continuing to accrue. Taxpayers who were impacted by the pandemic or other circumstances may qualify for relief from penalties due to reasonable cause if they made an effort to follow the rules, but were unable to pay the tax due because of circumstances beyond their control. Taxpayers should call the toll-free number on their notice to request penalty relief due to reasonable cause.

Whatever the Notice says or how you respond, be sure to keep copies of all the Notices, your responses, and any support documents in your tax records. You might need to refer to them later.

Getting an IRS Notice shouldn’t ruin your holidays. Knowing why you got a Notice, how to respond and your payment options will get you back to trimming the tree before you know it. Need more details? The IRS has them for you at https://www.irs.gov/individuals/understanding-your-irs-notice-or-letter.

Help for Pandemic Credit Woes

Your Economic Impact Payment was spent a long time ago, your work hours were cut, and your bills are getting harder to pay. Well, you are not alone. Widespread unemployment and economic hardships from COVID-19 are anticipated by financial experts to create a financial and credit crisis. My regular readers have already been alerted to the many scams out there to take advantage of vulnerable people. Those scams include “help” with credit and debt issues. 

Good news! Reputable (and often free) help is out there to help with your pandemic credit woes. Here are three options for credit and debt counseling that really help:

  • Nonprofit Credit Counseling

Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free financial education. Their counselors are certified and trained in consumer credit, money and debt management, and budgeting. They discuss your entire financial situation with you, and help you develop a personalized plan to deal with your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions. The Federal Trade Commission offers tips on finding an agency and questions you should ask before you start. https://www.consumer.ftc.gov/articles/0153-choosing-credit-counselor

  • Credit Union Membership

Credit unions are nonprofit financial institutions, while banks are for-profit, meaning they are either privately owned or publicly traded. Credit unions have lower fees and are all about community. They often provide free financial wellness and other services to help their members make good financial decisions, stay on top of bills and payments, and manage a budget. Check out Bank Rate to find a credit union near you and how to become a member. https://www.bankrate.com/banking/best-credit-unions/.  

  • Community Development Financial Institutions

Community Development Financial Institutions (CDFIs) are banks and credit unions that focus on serving people in low-income communities that have historically been locked out of the financial system. Unlike other financial institutions, CDFIs rely less on credit scores when providing loans and other products. In addition, they emphasize developing long-term relationships with members of the community to help them gain financial literacy, establish savings goals, build credit, and access affordable loans. Check out the official CDFI website to locate a certified financial institution near you. https://www.cdfifund.gov/programs-training/certification/cdfi/Pages/default.aspx 

Millions of people are suffering financial woes due to the coronavirus pandemic. If you or someone you know is impacted and needs help, nonprofit credit counseling, credit union financial wellness services, and CDFIs are some of the reputable resources that are out there for you. It might be difficult to take the first step, but that debt burden will feel lighter after you do. 

Who’s Keeping your Workplace Safe during COVID-19?

Businesses that are re-opening or expanding from limited operations want to be safe. Wanting to be safe is important, but not enough, especially these days. Keeping a safe workplace for workers and customers until we get COVID-19 under control requires even more planning than usual, because there are more health-related risks than usual. No business wants to be part of a coronavirus case spike.

American workers and businesses usually depend on the Occupational Safety and Health Administration, known as OSHA, for workplace safety guidance and oversight. Now, when businesses and workers need OSHA’s help to implement safety guidance, little assistance is being provided, according to a report from NPR’s Weekend Edition on July 4th. You can listen to the whole story about OSHA inaction on the thousands of COVID-related complaints OSHA has received here – https://www.npr.org/2020/07/04/887239204/many-say-osha-not-protecting-workers-during-covid-19-pandemic.

This news is unbelievably bad for American workers and businesses who are essentially left on their own to figure out how to protect their people and keep their doors open. Knowing where to start is daunting, so here are three tips for getting started to keep your workplace safe during COVID-19:

  • Review Available Resources

Even though direct federal safety oversight is not available, written guidance is online from OSHA and the Center for Disease Control (CDC). You will have to review it yourself, determine what parts apply to you, and how to make any necessary adjustments. A good place to start is OHSA’s Guidance on Preparing Workplaces for COVID-19 at https://www.osha.gov/Publications/OSHA3990.pdf. Check out these sites for more information –  https://www.osha.gov/SLTC/covid-19/controlprevention.html and https://www.cdc.gov/coronavirus/2019-ncov/community/office-buildings.html.

  • Engage Your Team

Gather your team to share the safety planning workload and to get different perspectives on what will be effective for your operations under the new COVID-19 scenario. People who do the work provide the best insight about the impact of operational changes. Talk through different situations you and your team will encounter to help you identify where changes need to be made.

  • Assess Your Operations

Use the OSHA and CDC guidance and your team’s insights to perform a coronavirus safety review specific to your business. The goal of the review is to identify gaps that need some adjustment under COVID-19. Walk through your workspace with your team to see how work areas and public spaces should be adjusted for physical distancing, high-touch surfaces that need frequent cleaning, protective equipment requirements, etc., etc. 

Businesses that are re-opening or expanding from limited operations need help being safe for workers and customers. Use these three tips to get started on the daunting task of keeping your workplace safe under the new COVID-19 scenario.

Need a Tax Payment Plan?

Many people are suffering financial hardship because of the COVID-19 economic downturn. 

Some of those people owed more money to the IRS when they filed their 2019 income tax return, but they didn’t have the funds to pay. Interest and penalties on unpaid tax balances keep adding to your tax debt, whether you have money or not. 

So, what do you do if you owe the IRS? Here is what you need to know:

  • Extended Payment Options – The IRS offers two ways for taxpayers to extend their tax payments over time:
  1. Short-term Payment Plan – If you can pay within 120 days, this option charges no fees and makes it easy to apply online. You’ll get an immediate notification of whether your application is approved. Interest and penalties continue to accrue until the tax is paid in full.
  2. Installment Agreement – Used when you need more than 120 days to pay, this option requires a set-up fee (e.g., $31-149 online and $107-225 via phone). Installment Agreements may require more information from you, depending on the balance due. Payments can be debited from your bank account, paid online, or by check. Credit card payments cost additional fees.

More details and a link to apply are at https://www.irs.gov/payments/payment-plans-installment-agreements#costs.

  • Tax Debt Amount Matters – Payment plan applications are generally easier to get approved for lower tax liabilities due than for large balances. Applications for $10,000 or less are automatically approved as a guaranteed Installment Agreement. For applications of amounts from $10-25,000, the approval is not guaranteed, and full payment must be made within six years. Tax debt payment plan applications for $25,000 up to $50,000 require information about your income, assets, and monthly expenses. Over $50,000 means a more thorough asset review to determine if anything can be liquidated to pay the tax due.
  • Offer in Compromise – A growing number of taxpayer households are suffering from long-term job loss, eviction, and medical issues with no insurance coverage. The IRS wants to collect all tax due but does not want to create an undue burden on taxpayers’ ability to provide for their basic needs. An Offer in Compromise allows you to settle your tax debt for less than the full amount owed if paying your full tax liability would create a financial hardship based on your assets, income, and expenses. See if you qualify at https://www.irs.gov/payments/offer-in-compromise.

Taxpayers who cannot pay their taxes due to the IRS in full have options to catch up. Depending on the amount due and your ability to pay, the IRS has extended payment plans and other mechanisms to avoid placing additional undue burdens on taxpayers who have already suffered financial hardship.