2021 Covid-19 $1400 Relief Checks Update
The IRS has said it will issue information and details on the distribution of this third payment once the bill is passed by Congress and signed into law by President Biden. The House is expected to vote on the measure Tuesday, and Biden has said he will move swiftly to distribute the relief. Based on the last two rounds of stimulus payments, here are answers to some common questions. Will I have to do anything to get a stimulus payment? At this point, the IRS will probably issue advance payments either based on your 2019 federal return or your 2020 return if you have filed one already. If your income was too high for a payment based on your adjusted gross income for 2019 but you think you may be eligible based on your circumstances from last year, you should file your tax return as soon as you can. For example, you may have lost your job last year. You may have had a child, which would make you eligible for a dependent payment of $1,400. However, the IRS has cautioned that you shouldn’t file before you have all the information you need to submit an accurate return. How much do I have to earn before I’m ineligible for a stimulus payment? It’s all about your AGI, which is your gross income minus certain adjustments. This time around, the AGI phaseout happens sooner than in the previous stimulus packages. So you may have received money in the first and second round but won’t get a check in this latest stimulus package. If you file as an individual and your adjusted gross income is more than $80,000, you aren’t entitled to a stimulus check. The cutoff is $120,000 for individuals filing as head of household. Couples earning more than $160,000 will phase out of a payment. Don’t assume you won’t qualify. If you aren’t sure of your AGI, you’ll find it on Line 11 on Form 1040 and 1040-SR for the 2020 tax year. It’s on Line 8b on your 2019 federal tax return. How will I get my money? In previous rounds, the IRS issued payments either by direct deposit, a mailed check or prepaid debit card. However, just because you got a direct deposit previously doesn’t mean the payment will be delivered the same way for this third round. You may get a check. It’s also possible the IRS may send payments on a prepaid debit card. Is there an age cutoff for stimulus payments for dependents? In the previous rounds of stimulus relief, parents could get a payment only for dependents who were younger than 17. Now there’s good news for many parents who complained about the age cutoff. Eligible taxpayers will get relief for older dependents. For example, dependent college students, disabled adult children, or an adult parent will qualify for the $1,400 dependent payment. But the money will be issued to the taxpayer, not the dependent. However, self-supporting college students or young adults living on their own who can’t be claimed as a dependent may be eligible for their own stimulus payment up to $1,400.
Update on EIP2 Stimulus Payments
IRS REVERSES COURSE AND NOW WILL BE REDIRECTING PAYMENTS TO PROPER ACCOUNTS For those that have not yet received their EIP2 payment, there is a subset of payments that were directed to closed accounts – your customer’s payment may have been caught up in that group. The IRS will now be processing those payments so taxpayers will receive them by February 1st. Your customers’ EIP2 stimulus payments will be processed by IRS and sent via your customers’ bank accounts or by check by February 1st based on the information you provided with their 2019 tax return. Once payments are made by IRS, the Get My Payment tool on the IRS website will be updated to reflect the payment amount after February 1st. Banks or tax preparers DO NOT have the funds – the US Treasury has the money and will be delivering it to taxpayers through the IRS process as stated above. The IRS, in their expedited effort to get these payments out, issued many of the payments in error to bank accounts that had been closed. If funds are attempted to be deposited into closed bank accounts, the financial institution is required, by law, to reject those funds back to the treasury. Initially, the IRS communicated, given the volume of their error, that they would not be able to reissue these funds. They had asked consumers impacted by their error to claim the EIP Recovery Rebate Credit on their tax return. This would have delayed the delivery of EIP to many customers until the end of February, and we at MetaBank as well as others in the industry found this solution unacceptable. MetaBank has been working tirelessly with the IRS to find another solution that will get funds to those that need it faster. As of yesterday afternoon the IRS has finally agreed to reprocess those payments that they deposited to closed bank accounts in error. The IRS has indicated that these payments would be reprocessed as soon as the IRS system goes officially live this tax season. We expect those payments to be processed by the end of January and begin to arrive in bank accounts or by check beginning February 1. This same group of taxpayers will therefore not need to file a credit on their tax return to get their EIP2 as was indicated earlier in the week. This decision to process these payments means that the IRS will take care of it for you and you do not need to do anything to get it. The IRS FAQs are updated regularly as this continues to unfold. We will continue to update you with any additional details as we learn them. We are working on additional tools to help you, our partners, help your customers. More details on that will be forthcoming this week.
Home Equity Loan vs. Cash-Out Refinance
Home Equity in a Nutshell Home equity loans best suit borrowers who have a substantial amount of equity available to them. You can determine the total amount of equity in your home by subtracting any and all debts secured by your house from the current fair market value of your home. The amount left over is the total equity, or value of ownership, of your house. Usually, the amount you can borrow is determined by your credit and combined loan-to-value (CLTV) ratio. Your CLTV is your desired home equity loan amount plus your existing mortgage balance, divided by your home’s value. Your CLTV must typically be under 90 percent. When you add a second mortgage to your home, your original mortgage remains unchanged, but you will have two mortgage payments. Introducing the Cash-Out Refinance Loan Option The cash-out refinance loan is a loan that refinances your first mortgage into a larger mortgage, and allows you to take the difference in cash. Assuming you have an adequate amount of equity in your home, a cash-out refinance loan enables you to: Pay off your existing mortgage. Negotiate a new term, rate and repayment schedule for your consolidated loan amount. Obtain a new mortgage in the amount of your existing mortgage, plus the amount you want to borrow. Receive the borrowed funds in a lump sum. When you elect to use a cash-out refinance loan to tap your home equity, you enter into a whole new loan agreement. This means the terms, rate and repayment plan for your new mortgage will be different. Generally, cash-out refinance loans offer up to 30 years for repayment, and you can choose between a fixed or adjustable interest rate. You may even be able to take advantage of potential tax savings depending upon how you are using your loan. Consult your tax advisor for more information. How a Cash-Out Refinance Loan is Different from a Home Equity Loan The primary difference between a cash-out refinance loan and other home equity loan options is that a cash-out refinance loan converts one mortgage into a separate larger one. Every other home equity loan option creates a second mortgage on your home. With a traditional home equity loan, you take on a second mortgage at a fixed rate with up to 30 years for repayment. One thing to consider is the fees associated with each loan. Cash-out refinancing may have fees and closing costs since you are changing your loan. Discover Home Loans offers both home equity loan and cash-out refinance options. With Discover, there are no origination fees, application fees, or cash due at closing.
Tax Season 2021: What You Need to Know
If you’re like us, you probably never want to think about 2020 again. But there is one lingering ghost from last year that you need to get rid of before you can truly move on for good—and that’s your 2020 taxes. Thanks to the coronavirus (among other things), a lot has changed for the 2021 tax season. That’s why you need to start thinking about your tax situation now while you still have time on your side. We want you to be prepared to tackle your taxes before they tackle you. And to do that, we’re going to dig into what’s new for this tax season and what’s staying the same. First, here are the main things you need to know right off the bat for the 2021 tax season: Tax Day is Thursday, April 15, 2021. You must file your 2020 tax returns by this date! The standard deduction for 2020 increased to $12,400 for single filers and $24,800 for married couples filing jointly. Income tax brackets increased in 2020 to account for inflation. But that’s just scratching the surface! Let’s break down the details so you can file your taxes with confidence this year. Income Brackets and Rates for 2021 Tax Season Here’s a refresher on how income brackets and tax rates work: Your tax rate (the percentages of your income that you pay in taxes) is based on what tax bracket (income range) you’re in. Taxes shouldn’t be this complicated. Let us help. For example, if you’re single and your income is $75,000, then you’re in the 22% tax bracket. But that doesn’t mean your tax rate is a flat 22%. Instead, part of your income is taxed at 10%, another part at 12%, and the last part at 22%. (You can check out the chart below to see all the tax brackets with their corresponding tax rate.) For the 2020 tax year, the tax rates are the same—but there are some slight changes to the brackets. Basically, the brackets have been adjusted by a few hundred dollars from 2019 to account for inflation.
Your Guide to 2020 Tax Deductions
CLAIMING TAX DEDUCTIONS is a powerful strategy for tax filers. Using appropriate deductions can lower your bill, increase your tax refund or make sure you’re taking advantage of tax benefits offered by your federal and state governments. Want to know how to best use tax deductions? Here’s your guide to 2020 tax deductions. What Is a Tax Deduction? A tax deduction reduces a filer’s taxable income. In other words, a deduction “reduces your income in arriving at taxable income,” says Charlene Wehring, certified public accountant, financial advisor and founder of Wehring Wealth Management in Bellville, Texas. “And then you apply your (tax) bracket.” That’s in contrast to a tax credit, which lowers your tax liability dollar for dollar. Tax deductions typically fall into three main categories: The standard deduction. Itemized deductions. Above-the-line deductions. A filer must choose between taking the standard deduction or itemizing deductions but can use relevant above-the-line deductions regardless of whether they itemize. The Standard Deduction The standard deduction is a set amount of money on which you aren’t taxed. It’s fixed for each tax year and depends on your filing status, age, spouse’s age and whether you or your spouse are blind.
What You Need to Know About Your 2020 Taxes By JEFF STIMPSON
This is article is originally from Investopedia.com As Americans deal with the COVID-19 pandemic, it’s not too early to look ahead to the 2020 tax year filing season including the impact of existing and recent legislation on how you will file in 2021. In addition to several changes brought on by coronavirus-related legislation, other changes for the 2020 tax year were set to happen anyway. These include new standard deduction amounts, income thresholds for tax brackets, certain tax credits, and an increase in retirement savings limits. Others, including deductions for medical and dental expenses, and state and local sales taxes have remained the same.1 Tax year 2020 quarterly estimated tax payment due on or after April 1, 2020, and before July 15, 2020, can be delayed until July 15 without penalty.2 Stimulus Payments Your $1,200 ($2,400 for couples) stimulus payment, officially known as a “Recovery Rebate,” is an advance refundable tax credit on 2020 taxes. This means no matter how much you owe (or don’t owe) in taxes for the 2020 tax year, you get to keep all the money with no taxes due on it.3 Since the stimulus payment will either be based on your adjusted gross income (AGI) for 2018 or 2019, but technically applies to your 2020 AGI, there may be some discrepancy.3 Don’t worry. The news there is good as well. If it turns out your AGI for 2018 or 2019 (whichever one the IRS bases your stimulus payment on), is lower than 2020, resulting in a higher payment, you can keep the overage. If your AGI for 2018/19 is higher than your AGI in 2020, you can claim the additional amount owed when you file your 2020 taxes in 2021. This applies to dependents under 17 as well. If someone else claims a child now, based on 2018/19 returns, but you legitimately claim that child on your 2020 return, you will get a $500 tax credit when you file in 2021 and the person who got it based on 2018/19 returns will not have to pay it back. If you have a child in 2020 you can claim the child when you file in 2021 and receive the $500 credit then.4 5 6 Finally, your recovery rebate is not taxable. It will not add to your taxable income in 2020 (or any other year).5 All of this is based on the fact that the CARES Act contains no “claw back” mechanism by which the government can reclaim funds that were legitimately extended.3 KEY TAKEAWAYS Recently passed coronavirus legislation has added to tax law changes already set to take place for the 2020 tax year.1 Although stimulus payments are related to your income in 2020, built-in safeguards minimize the impact on your taxes.5 The standard deduction for those married filing jointly rose to $24,800 for tax year 2020, up $400 from 2019.1 Income ranges for determining eligibility to make deductible contributions to traditional IRAs and to contribute to Roth IRAs have all increased for 2020.7 An important change lets you deduct $300 in charitable contributions “above-the-line.”8 3 Changes relaxing retirement account withdrawals and RMDs are designed to help.1 Estates of decedents who die during 2020 have a basic exclusion amount of $11.58 million, up from $11.4 million from the year prior.1 Brackets and Rates For tax year 2020, the top tax rate remains 37% for individual taxpayers filing as single and with income greater than $518,400, which is a modest bump up from $510,300 for 2019.9 The income threshold for this rate will be $622,050 for married couples filing jointly (MFJ) and $311,0215 for married individuals filing separately (MFS).10 1 Income ranges of other rates up to the next-highest threshold are as follows: 35% for single and MFS income exceeding $207,350 ($414,700 for MFJ) 32% for single and MFS income exceeding $163,300 ($326,600 for MFJ) 24% for single and MFS income exceeding $85,525 ($171,050 for MFJ) 22% for single and MFS income exceeding $40,125 ($80,250 for MFJ) 12% for single and MFS income exceeding $9,875 ($19,750 for MFJ) The lowest rate is 10% for single individuals and married couples filing separately, whose income is $9,875 or less. For married individuals filing jointly, the combined income may not exceed $19,750.1 For those filing as head of household (HOH), the income thresholds are the same as rates for singles in the 37%, 35%, and 32% brackets.1 10 In other HOH brackets, the income thresholds are now $85,501 to $163,300 in the 24% bracket; $53,701 to $85,500 in the 22% bracket; $14,101 to $53,700 in the 12% bracket; and up to $14,100 in the 10% bracket.10 Continue Reading….