COVID-19/Coronavirus Tax Relief News

What You Should Know About Unemployment Taxes

Unemployment benefits saved a lot of American households this past year. Furloughs and lay-offs were at an all-time high due to the pandemic, leaving many without a lot of options.

However, unemployment comes with taxes that few people understand, or know about. Whether you’re considering applying for unemployment, or have already started utilizing these benefits, you should know how this affects your taxes.

Unemployment Taxes

Social Security and Medicare taxes are not something you have to pay for while receiving unemployment benefits. The taxes that are required for you to pay are federal and state taxes (depending on the jurisdiction). Some states wave income taxes for unemployment—states such as California and New Jersey for example. If your state’s benefits program is not tax-exempt like Florida and Nevada, you should opt to withhold taxes from each check.

Withholding Unemployment Taxes

Withholding is presented as an option when completing weekly or bi-weekly check-ins for your unemployment benefits. By withholding, you’re paying taxes upfront, rather than letting them accumulate throughout the year. If you choose not to withhold, then you’ll be expected to pay back the IRS when you file your return.

The flat rate for federal tax withheld is 10% of the benefits. This amount certainly adds up to a sizeable sum by the end of the year if it’s not paid weekly. If the taxes go unpaid, you could be at risk of liability.

To avoid a liability, you can send quarterly estimated tax payments to the IRS, fill out a W-4V with your unemployment office, or if you started working again you may qualify for EITC— Earned Income Tax Credit. Your EITC amount could reduce or cover the amount you owe in unemployment taxes.

What to do if you have a liability

If you’re expecting to owe more than you can pay at the time that you file your return, there are options available to you. You can contact the IRS to set up an installment plan, which allows you to make monthly payments until the balance is paid in full.

You can also contact Optima today for a free consultation, should you find yourself owing a large sum to the IRS. Give us a call at 800-536-0734 to speak with one of our tax associates now!

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Did you receive Multiple Notices about your Economic Impact Payment?

With three Economic Impact Payments issued out, the IRS is now required to mail out a notice to each recipient’s last known address. The notice provides details regarding the payment amount, how the payment was made and how to report any payment that was not received. Some individuals may receive multiple notices that detail each payment that they have received. For the most part, most taxpayers will file away their stimulus notice with the rest of their tax documents until the next tax-filing season and will not be required to take further action with the IRS.

Here is what each stimulus notice you may have received means and what action you may need to take:

  • Notice 1444, Your Economic Impact Payment. After the first economic payment was issued in 2020, the IRS mailed Notice 1444 within 15 days of an individual receiving their payment. Some people received another Notice 1444 if the IRS corrected or issued more than one payment in the first round.
  • Notice 1444-A, You May Need to Act to Claim Your Payment. The IRS mailed this notice out last year to taxpayers who are usually not required to file a federal income tax return but may still be eligible for the first stimulus payment. People who did not get the first or second Economic Impact Payment or did not get the full amount may be eligible to claim the 2020 Recovery Rebate Credit. These individuals will need to file their 2020 tax return even if they are not typically required to do so.
  • Notice 1444-B, Your Second Economic Impact Payment. Taxpayers received Notice 1444-B several weeks after their second payment. Those who did not receive their payment should refer to the FAQs page for stimulus payments on the IRS website.
  • Notice 1444-C, Your 2021 Economic Impact Payment. Taxpayers who received the third stimulus check should have already received their notice informing them of their payment. Taxpayers should keep this notice with the rest of their tax records.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation. 

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Here’s how the IRS will notify Taxpayers why their Stimulus Checks was less than expected

Individuals who have yet to file their tax return and have received the previous round of stimulus checks may have been sent less than expected and, in some cases, were not sent anything at all. The good news is a recovery rebate credit on this year’s tax return will allow taxpayers to submit a claim for their stimulus funds.

The stimulus checks that were issued out over the last year for up to $1,200 for married couples and $600 per person are considered advance payments of the recovery rebate credit. Qualifying individuals are reminded that they may have not received the exact amounts that they were due. 

For those who did not receive the credit or only received a portion of the amount, they can claim the credit on their tax return form – line 30 of Forms 1040 or 1040-SR. Taxpayers should state the amount of stimulus money that they have already received and calculate any additional funds that are still owed to you. The IRS provides a worksheet with the tax form or through a tax preparation software.

Once the IRS receives your return, the agency will review it to verify that the information that they received is correct. If there is a discrepancy with what you placed on your return versus what the IRS has on file, there could be a delay in processing your return and you may receive notification from the IRS via mail that corrections were made to your tax return.

Some reasons why the IRS may correct your credit amount are if you fail to provide a valid Social Security number or if you were claimed as a dependent on a 2020 tax return. If a dependent was age 17 or over as of January 1, 2020, they will not be eligible for a payment.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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Taxpayers could Receive a Tax Break on Unemployment Benefits

Although jobless benefits are considered taxable income, the recently enacted $1.9 trillion American Rescue Plan allows individuals receiving unemployment to have the first $10,200 of those benefits exempt from federal income taxes.

 Taxpayers with a modified adjust gross income of $150,000 or more are not eligible for the tax break. The income threshold is the same for both single and married tax filers.

According to some tax experts, taxpayers who suffered job loss during the pandemic could see $1,000 to $2,000 reduced off their total tax bill.

The law to have the first $10,200 unemployment exempt from their federal taxes took effect after the Internal Revenue Service (IRS) had already received at least 55 million individual tax returns. The good news is that the IRS may be able to adjust the already submitted and amended tax returns with no additional paperwork required.

The IRS will issue out refunds in two phases. The first phase will start for taxpayers who qualify to exclude up to $10,200 of unemployment benefits from their federal tax income.

The second phase will include married couples who file a joint tax return. Couples who file jointly, can waive tax on up to $20,400 of benefits.

It is still unknown as to whether the first phase of payments will also include married couples in which just one spouse received unemployment benefits, or if they will fall in the second round. It is also still unknown as to whether or not taxpayers with much more complex tax returns will be issued out a refund in phase one or if they will have to wait for phase two.

We will continue to update you with new information as this story develops.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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Is Your Stimulus Check Taxable?

worried man

The tax code states that individuals must pay taxes on any income that they have earned throughout the tax year. So, does that mean you have to pay taxes on any of the stimulus checks that you have received?

There are loopholes in the current tax law that prevent qualifying individuals from having to pay taxes on their stimulus checks. These payments are not considered income and are instead considered an advance payment on a tax credit. For those who receive tax credits, it is important to know that they are not considered a taxable credit.

Taxpayers filing their 2020 federal income tax return (Form 1040), will see an additional line on the second page for the “Recovery rebate credit.” Individuals should review this line on their return carefully, especially if they:

  • did not receive the full amount from the first and second stimulus check
  •  did not file a 2018 or 2019 tax return
  •  are married and one spouse did not have a Social Security number
  •  saw a decrease in income in 2020
  •  had a baby in 2020
  •  are a recent college graduate
  • had a significant change in circumstances in 2020.

For those who qualify for the stimulus check and have not received the full amount from either of the stimulus payments, this new credit will help you save a lot of money.

The first and second stimulus checks are calculated the same way and are based off the information that was provided on your 2018 or 2019 tax return. The tax credit will also be based on the number that an individual puts down on their 2020 tax return.  Taxpayers should be aware that failing to file their 2018 or 2019 tax return could result in a difference between the amount of their stimulus checks and credit amount.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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IRS Delays Tax Deadline from April 15th to May 17th

tax form with calculator, money and pen

The IRS is now planning to delay the April 15th tax filing deadline by a month to allow taxpayers additional time to file their taxes and to resolve any outstanding collection issues.

The details of the final deadline are still being worked out, but the move comes after there were increased calls to extend the tax deadline following the approval of the $1.9 trillion American Rescue Plan. The new tax extension will allow the IRS time to send out the third round of stimulus check and process both individual and business tax returns.

At the start of the year, the IRS announced that they would push back the start of the tax season to February 12th. This allowed the agency additional time to distribute the second round of stimulus checks that was passed last December through the Covid relief bill.

In February, the IRS had already extended the tax filing deadline to June 15th for individuals and businesses in Texas when President Biden declared a disaster after major snowstorms hit the area. At this time, it does not appear that any additional time beyond that deadline has been added for those residents and business owners to file.

Due to disruptions from the pandemic and the changes in tax laws, many taxpayers will have to wait for updated forms or resubmit their return if certain corrections need to be made. With the new tax deadline, taxpayers will now have breathing room to collect their important tax documents and consult with a tax professional so that they can accurately file their tax return.

Taxpayers should be aware that the federal tax filing postponement only applies to federal income tax returns and tax payments. State tax payments and deposits, as well as any other type of federal tax besides income tax, are not affected by this postponement. Individuals are still required to file their income tax returns but should be aware that their state filing deadline could vary. Taxpayers can check with their state tax agencies for additional details regarding their state’s tax filing deadline.

We will continue to update you with new information as this story develops.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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Your Latest Stimulus Check could be Garnished for Unpaid Debts

The recently passed $1,400 stimulus check is expected to provide relief to Americans who have been financially struggling throughout the ongoing pandemic. However, certain individuals may be at risk of having their stimulus check garnished if they have unpaid debts.

The $1.9 trillion Covid relief bill includes a third round of direct payments. The payments will come with eligibility rules which will be based off taxpayer’s income as well as other requirements.

It is important to note that these new checks will be authorized through a budget reconciliation process that will not be exempt from garnishments. Both consumers and banking trade groups are calling for stimulus payments to be exempt from garnishments so that families have a chance to pay their household bills. Individuals who have unpaid debts or have their entire bank accounts frozen by garnishment order, will not be able to access their funds which also includes their stimulus check.

Many are requesting that a standalone bill be passed to prevent banking institutions from having to pay creditors who are attempting to garnish and freeze people’s bank accounts.

Currently, there are three types of unpaid debt that could lead to an individual getting garnished: unpaid IRS tax debt, other government debt, or private debt.

Stimulus check recipients will be protected from outstanding debt or debt collected by the government which would include child-support offsets. However, stimulus payments are not protected from collection for private debts.

There are limited ways individuals can change their bank account information with the IRS. Because of this, there is not really a way to prevent funds from getting taken unless you close your account. However, this would likely mean that individuals would have to wait longer to receive this stimulus checks.

We will continue to update you with new information as this story develops.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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First-Time Homebuyers may receive up to $15,000

President Biden has proposed a $15,000 tax credit for first-time homebuyers to help offset the costs of buying a home. The details of the proposal from either party have yet to been made official and would most likely be worked out in a bill passed by congress.

The proposal would help millions of families buy their first home by creating a new refundable and advanceable tax credit of up to $15,000. The new First Down Payment Tax Credit would assist families offset the costs of home buying and help millions of families buy property for the first time.

This credit is very similar to the $7,500 tax credit that was created by the Housing and Economic Recovery Act signed by President George W. Bush back in July of 2008. The credit was previously increased to $8,000 the following year in a bill that was signed by President Barak Obama. The program expired back in 2010.

The current proposed plan differs from the prior tax credits in the way that it could be redeemed. Previous credits were claimed when buyers filed their income taxes the following year. Biden’s proposal would create a tax credit that could be used during the time of a home purchase.

We will continue to update you with new information as this story develops.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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Here’s what Taxpayers need to know about President Biden’s $1.9 Trillion Economic Rescue Package

Taxpayers can expect a bigger stimulus check in addition to more aid for the unemployed, the financially struggling and those who are currently facing eviction. Additionally, the Economic Rescue Package will also provide assistance to small businesses, states and local governments and will increase funding for vaccinations and testing.

Here’s what American’s need to know about the new rescue plan and how it can affect them.

Larger stimulus payments

Eligible recipients can expect to receive $1,400 per person. This would be in addition to the $600 individuals previously received that was approved by Congress in December and was distributed to qualifying individuals earlier at the beginning of the year.

These new stimulus payments will also go out to adult dependents who were not included in the previous rounds. The impact payment will also include households with mixed immigration status, since the first round of $1,200 checks did not include spouses of undocumented immigrants who did not have Social Security Numbers.

Unemployment assistance

President Joe Biden wants to increase jobless benefits from the $300 weekly increase in unemployment from the Congress’ relief package back in December to $400 a week. Biden would also like to extend additional pandemic unemployment programs through September. This will apply to Pandemic Emergency Unemployment Compensation program and the Pandemic Unemployment Assistance program.

Rental assistance and eviction moratorium

The rescue package would provide more than $25 billion in rental assistance for low to moderate income households who have lost their jobs or are financially struggling to stay afloat during the ongoing pandemic. This would be in addition to the $25 billion lawmakers provided in December.

An additional $5 billion would be set aside to assist renters struggling to pay their utility bills. Biden is also calling for $5 billion to assist states and localities help individuals who are currently experiencing homelessness.

Additional assistance for child care and child tax credits

Congress would be called on to create a $25 billion emergency fund and also add an additional $15 billion to an existing grant program that will assist child care providers pay for rent, utilities and payroll, and increased costs associated with the personal protective equipment.

Small business assistance

The plan would call for providing $15 billion to create a new grant program for small business owners that would be separate from the existing paycheck protection program.

$15 hourly minimum wage

Biden is asking Congress to increase the current minimum wage to $15 an hour and to end the tipped minimum wage and the sub-minimum wage for people with disabilities.

We will continue to update you with new information as this story develops.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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Small Businesses that Took out PPP Loans may face Tax Implications

The federal COVID Relief bill provided small businesses with forgivable loans to assist them throughout the ongoing pandemic. Although this bill has provided considerable assistance, small businesses may still have to deal with a tax hit when it comes to filing their state tax returns.

Some borrowers may be eligible for PPP loan forgiveness if at least 60% of their proceeds go towards payroll expenses. Partial loan forgiveness may also be available to those who fall sort of the threshold. PPP borrowers are also able to claim tax deductions for expenses that were covered with forgiven loan proceeds. PPP loans that aren’t forgiven, must be repaid and are subject to an interest rate of 1%.

Taxpayers need to be aware that some states may block PPP borrowers from claiming deductions on state tax returns or from having their balances zeroed out without paying any taxes on it.

Every state will vary in their approach to the Internal Revenue Code and can decide whether or not they will adopt changes to the federal law. Some states may follow their own rules when determining each individual’s income while others will choose to follow the federal code.

States have the ability to take different approaches when interpreting the COVID relief measures which includes the possibility of disallowing tax-free PPP forgiveness or blocking deductions associated to PPP.

Another factor that may determine whether or not states will consider the PPP loan as income is the state sales and income tax revenues. Due to COVID-19, many states have seen a decline in state income amid layoffs and businesses having to close down.

Taxpayers should review their state’s tax filing guidelines to determine how they should file and if they should prepare to owe a state balance.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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