COVID-19/Coronavirus Tax Relief News

IRS Sends Large Tax Bills for 2021 Unemployment Benefits

unemployment

Due to the COVID-19 pandemic, millions of US workers lost their jobs. While some were able to return to work in 2021, approximately 25 million people received unemployment benefits and didn’t withhold taxes. The IRS is now looking to collect back taxes for the $325 billion in total benefits and mailed millions of large tax bills this season.

Withholding Unemployment Tax

Most states and the federal government consider unemployment benefits taxable income. You should withhold federal taxes on your unemployment in order to avoid a bill the following tax season.

In 2020, there was a tax break that allowed millions of Americans to owe a lesser amount of tax, or not owe tax at all. However, as the IRS has steadily made efforts to return to normal enforcement activity since 2021, there was no such tax break this year.

What happens if you don’t pay taxes on unemployment benefits?

As with any tax liability, you will receive a tax bill from the IRS via mail. Should you not reach out to the IRS or pay the bill by the end of the tax season, you could face enforcement consequences such as a levy or lien, accrue interest, and lose eligibility for a refund after filing a return.

What to do if you owe taxes for unemployment benefits

If you owe taxes on your unemployment benefits and can’t afford to pay it back in full, you have a couple of options. The first option, if your tax bill isn’t too high by your means, you can contact the IRS to set up a payment plan. This option allows you to negotiate how much you will pay monthly until the bill is paid.

Should you find that your liability is too high for you to pay back or you’re facing hardship that doesn’t allow you to afford your payment options, consider seeking professional assistance such as Optima Tax Relief.

At Optima, we assist clients who owe state and federal taxes, including individual, joint filers, and business filers. Give us a call at (800) 536-0734 for a free consultation today.

By |COVID-19/Coronavirus Tax Relief News, Tax News|Comments Off on IRS Sends Large Tax Bills for 2021 Unemployment Benefits

IRS Backlog to Clear Up by End of 2022

irs backlog

At the start of the COVID-19 pandemic, the IRS was forced to close its doors. Since reopening, there has been an extensive backlog of tax returns that the organization couldn’t seem to catch up on. Many American taxpayers have been waiting for refunds that are a year or more behind. In recent weeks, Commissioner Charles Rettig stated that the IRS backlog is due to clear up by the end of 2022.

What has changed for the IRS?

In addition to the complications of being a business in the midst of a pandemic, being understaffed has also immensely affected the turn-around for tax returns. This month, the IRS has accelerated their recruiting process in order to reach a goal of hiring 10,000 new employees. The hiring push is expected to cut tens of millions of tax returns in the backlog.

What does a clear backlog mean for 2023 filing season?

Commissioner Rettig said, “As of today, barring any unforeseen circumstances, if the world stays as it is today, we will be what we call ‘healthy’ by the end of the calendar year 2022, and enter the 2023 filing season with normal inventories.”

This means that next year, the IRS will likely resume usual enforcement and collection activity. With a lack of backlogged returns and a mostly healthy nation, in addition to thousands of new hires, the IRS can operate normally- if not better than the last two years.

What does IRS enforcement look like?

When you have a penalty or fall behind in paying your taxes, you should expect a notice from the IRS. The notice is the first step in communicating a liability. From there, your penalty can accrue interest daily until paid.

The IRS is also known for applying liens and levies, taking legal possession of your assets. Ideally, you want to contact them before this point to gain compliance and prevent worst-case scenarios.\

What if you owe back taxes currently?

At Optima, we help clients that are facing tax debt in their journey to a resolution. Give us a call at (800)536-0734 for a free consultation today.

By |COVID-19/Coronavirus Tax Relief News, Tax News|Comments Off on IRS Backlog to Clear Up by End of 2022

Taking a CARES Act Retirement Withdrawal could Lead to a Tax Liability

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.

With taxpayers still dealing with the financial fallout from the COVID-19 outbreak, many are falling on hard times and needing to get cash quickly. The Coronavirus Aid, Relief and Economic Security Act, also known as the CARES Act, has a provision that can aid Americans that are financially strapped.

The CARES Act makes it easier for taxpayers to withdraw funds from their retirement accounts like 401(k)s and traditional Individual Retirement Accounts (IRAs). The temporary changes made to retirement accounts allows taxpayers to make early withdrawals without worrying about tax penalties as well as relaxed rules on loans you take out from your retirement.

What is my retirement contribution limit?

In most cases, taxpayers are able to deduct up to $6,000 for a traditional IRA. If you are 50 years or older, you are able to deduct $7,000. If you have a different retirement account, the amount will differ based on your age and type of plan you have chosen. Your contribution amount may also be limited based on the amount of income you earn.

Here is everything you need to know about the CARES Act.

Eligibility on early withdrawals from retirement accounts with the CARES Act

Some tax-advantaged retirement account holders may not qualify for some of the CARES Act’s relaxed early distribution and loan provisions. Legislation restricts relief to certain participants with a valid COVID-19 related reason in order to receive early access to funds. This includes:

·         If you have been diagnosed with COVID-19.

·         If your spouse or dependent is diagnosed with COVID-19.

·         Experiencing a layoff, furlough, reduction in hours, or inability to work due to COVID-19.

·         Lack of childcare because of COVID-19.

·         Closing or reducing hours of a business owned or operated by an individual or spouse due to COVID-19.

Additional rules for early distribution

Eligible participants in tax-advantaged retirement plans typically have 401(k)s, 403(b)s,457s, and Traditional IRAs. This includes taking an early distribution of up to $100,000 during the calendar year 2020 without having to pay the 10% penalty tax that is typically imposed on most retirement account withdrawals before an account owner is 59 ½.

The act also suspends the mandatory 20% tax withholding requirement that is typically applied to early distributions from a 401(k) or other workplace retirement plan. The CARES Act allows taxpayers up to three years to redeposit the withdrawn money back into their retirement account or pay it all back in 2020 if your income is much lower this year.

Can contributing to an IRA change my tax bracket?

Contributing to your retirement plan can change the tax bracket you are typically in, if your income is near a bracket level. It is important to know that contributing to your plan does not have as big of an effect on your income bracket as you may think because each level of your income is taxed at the income tax rate for that bracket.

If you need tax help, contact us for a free consultation.

By |COVID-19/Coronavirus Tax Relief News|Comments Off on Taking a CARES Act Retirement Withdrawal could Lead to a Tax Liability

Pending Status on Previous Tax Returns Can Delay this Year’s Return

pending return delay

The COVID-19 pandemic has been the biggest setback for the IRS from the start. Millions of Americans have been waiting for tax returns and refunds from previous years, causing even more delay for 2022. If your returns from last year are still pending, then your return will be delayed this year as well.

How to avoid rejection for this year’s filing

Electronic filing is a great wait to lessen the likelihood of delays. You can also validate your return with last year’s adjusted gross income so that it doesn’t get rejected.

What to do if last year’s return is pending

National Taxpayer Advocate Erin Collins recommends entering $0 for your 2020 adjusted gross income when you file online.

If you collected the advanced child tax credit or your stimulus via the nonfiler tool in 2021, the IRS recommends entering $1 for last year’s adjusted gross income.

There’s a possibility of the IRS rejecting your electronic return if you do not follow these steps. A tax software would typically send you a rejection email if your return shows conflicts with your AGI.

Notice regarding missing return

Receiving a CP80, or notice of a missing return, could also leave your return in a pending status. If you received this notice and your return is still pending, you should also enter $0 for you 2020 adjusted gross income.

There is a chance that the IRS processed last year’s return after sending the notice. In which case, your AGI of $0 will be rejected. Should this happen, you can refile your 2021 return with the correct AGI.

How to check the status of your 2020 return

It helps to have a transcript to check the status of your 2020 return if you aren’t sure.

If you have a delinquent tax liability and need assistance with your 2020 return, call Optima for a free consultation at (800)536-0734.

You can download the Optima® TAX APP and file an extension for free if you need more time to file your taxes.

By |COVID-19/Coronavirus Tax Relief News, Tax News|Comments Off on Pending Status on Previous Tax Returns Can Delay this Year’s Return

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!

By |COVID-19/Coronavirus Tax Relief News, Tax, Tax News, Tax Planning|Comments Off on What You Should Know About Unemployment Taxes

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. 

By |COVID-19/Coronavirus Tax Relief News|Comments Off on Did you receive Multiple Notices about your Economic Impact Payment?

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.

By |COVID-19/Coronavirus Tax Relief News|Comments Off on Is Your Stimulus Check Taxable?

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.

By |COVID-19/Coronavirus Tax Relief News|Comments Off on IRS Delays Tax Deadline from April 15th to May 17th

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.

By |COVID-19/Coronavirus Tax Relief News|Comments Off on Your Latest Stimulus Check could be Garnished for Unpaid Debts

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.

The first-time homebuyer tax 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.

By |COVID-19/Coronavirus Tax Relief News|Comments Off on First-Time Homebuyers may receive up to $15,000