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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Vehicle Mileage Tax

Senate recently passed President Joe Biden’s infrastructure bill, which includes a pilot program for vehicle mileage tax. This tax would charge drivers based on how many miles they drive in a year. The vehicle mileage fee will likely bring in revenue for transportation and future infrastructure projects.

Why is vehicle mileage tax is being enforced?

The goal of the mileage tax is to “test the feasibility of a road usage fee,” according to the infrastructure package. The bill goes on to say, “to conduct public education and outreach to increase public awareness regarding the need for user-based alternative revenue mechanisms for surface transportation programs.”  In short, the tax will be used to raise money and perform outreach regarding transportation options.

When are you expected to pay vehicle mileage tax?

This tax may or may not be implemented, so you don’t have to worry just yet. During a pilot program, volunteers from all 50 states will test out the taxing system by reporting their miles. Driver and passenger miles will be tracked through data apps and GPS. This pilot program could take a while to be completed before a final decision is made.

Will a vehicle mileage tax replace gas tax?

It is uncertain now as to whether President Biden will implement mileage tax in addition to, or in place of gas tax.

Advantages and disadvantages

While drivers could be taxed based on how much they drive, rather than paying more for gas, the drivers may be concerned with privacy. Sharing your GPS data with the government can raise some red flags for some Americans, as well as prove to be a difficult feat to accomplish. There is also the possibility of rural drivers paying more because they drive further than urban and suburban drivers.

More information

As additional information is gathered on the infrastructure bill, we will share with our readers and clients. For now, it seems that there is a lot of uncertainty around whether vehicle mileage taxes will be taken into action in the near future.

For tax relief services and questions, call Optima at 800-536-0734 for a no-obligation consultation today.

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Payment Service App Taxes

Since 2009, apps such as Venmo have been evolving into common payment methods for businesses and individuals. Now, peer-to-peer payment apps are gaining the government’s attention regarding unreported income. To remain compliant with the IRS, there are some things to consider if you utilize these apps for business.

Report your payment app income

Sending money to friends and family isn’t exactly what the IRS is looking for. However, if you’re a business that accepts payment through Paypal, Venmo, or the likes, you are responsible for reporting your income. P2P platforms are expected to report business transactions receiving over $20,000 in gross payment volume and over 200 separate payments. The platform will send you a copy of Form 1099-K, which is also sent to the IRS. Even if you don’t receive the form, you are still required to report taxable income.

Does your transaction raise any flags?

Generally, small transactions aren’t on the IRS radar. Splitting the bill at dinner, for instance, is not a taxable transaction. The IRS is looking for potential noncompliant cases to crack down on unreported income.

Businesses that report less income, but have large transaction records reported by P2P apps, may be at risk of being audited.

What to do if you are found noncompliant

Owing back taxes to the IRS can be a scary time for any business owner. There are options available to help your business get back into compliance and avoid future mistakes with tax returns. At Optima, we amend tax returns and help our clients stay on track with our Optima Protection Plan. You can learn more about our process for resolving tax debt here.

Contacting Optima

Contact us at 800-536-0734 for a no-obligation consultation today. Optima Tax Relief aids individuals and businesses 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 Signs Three New Collection Agencies

The IRS recently signed contracts with three private-sector collection agencies, taking effect Thursday, Sept. 23, 2021. Taxpayers that are behind on payments toward their debts may be contacted by one of the new agencies. Here’s what you need to know:

Read More

What Is An IRS Revenue Officer?

Revenue Officers deal with the most advanced tax collection cases that the IRS has on file. If you owe a large sum of money to the IRS, you could potentially have a Revenue Officer assigned to you. Optima CEO David King and in-house Revenue Officer expert and Enrolled Agent, Rosie Steele, provide helpful tips on what individuals can do if they have been assigned a Revenue Officer.

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Payment Service App Taxes

Since 2009, apps such as Venmo have been evolving into common payment methods for businesses and individuals. Now, peer-to-peer payment apps are gaining the government’s attention regarding unreported income. To remain compliant with the IRS, there are some things to consider if you utilize these apps for business.

Read More

What is the Vehicle Mileage Tax Program?

The Senate recently passed President Joe Biden’s infrastructure bill, which includes a pilot program for vehicle mileage tax. This tax would charge drivers based on how many miles they drive in a year. The vehicle mileage fee will likely bring in revenue for transportation and future infrastructure projects.

Read More

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IRS issues guidance on Taxability of Dependent Care Assistance Programs

The IRS has issued guidance on the taxability of dependent care tax assistance programs for 2021 and 2022. In the guidance, it was clarified that any amounts that were attributable to carryovers or an extended period for incurring claims would typically be non-taxable events. In addition, under the American Rescue Plan Act, the new guidance has mandated a one-year increase in the exclusion for employer-provided dependent care benefits from $5,000 to $10,500 for the 2021 tax year.

Due to the ongoing pandemic in 2020 and 2021, individuals were unable to use the money that they had previously set aside in their dependent care assistance programs. Under these plans, an employer typically allows employees to set aside a certain amount of pre-tax wages in order to pay for any dependent care expenses they may have.

In most cases, carryovers of unused dependent care assistance program amounts are not allowed. However, because of legislation related to coronavirus such as the Taxpayer Certainty and the Disaster Tax Relief Act of 2020, employers are allowed to change their plans and can now permit the carryover of unused dependent care assistance program amounts to plan years ending in 2021 and 2022.

Notice 2021-26 states that dependent care benefits would have been excluded from income if used during taxable year 2020 (or 2021, if applicable). These benefits will remain excludible from gross income and are not considered wages of the employee for 2021 and 2022.

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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New Tax Plan could raise Taxes by $213,000 next year on wealthy Americans

As a result of President Joe Biden’s tax plan, the top 1% could see their taxes increased by more than $213,000. This could mean that households that earn $800,000 or more could see their after-tax income decline by about 11% according to the Urban-Brookings Tax Policy Center’s analysis.

The proposed plan would increase taxes on the ultra-wealthy Americans and corporations in order to pay for an expansive infrastructure plan and add more features to the social safety net that would largely benefit low- and middle-income families.

Americans that earn at least $3.6 million would be required to pay an additional $1.6 million which would make their income fall about 17%, according to the Tax Policy Center.

Biden’s plan would increase the top marginal income-tax rate to 39.6% from the current 37%. The plan would also tax the appreciation of unsold stock and other assets at death. Previously these assets were able to pass to many heirs tax-free.

The plan would additionally extend the recent temporary increases to the child tax credit, the child and dependent care credit, and the earned income tax credit. These benefits are largely to assist the low and middle-income households.

The plan would give households earning $26,000 or less an average tax cut of $600 next year which would increase their after-tax income by about 4%. Middle earners that make between $52,000 to $93,000 would receive a $300 tax cut, or 0.5% of after-tax income.

This new initiative is an attempt to help low to middle-income earners that have kids and need the additional tax breaks to stay financially afloat.

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 are given guidance on Premium Assistance and Tax Credit for Continuation Health Coverage

The Internal Revenue Service issued out guidance on tax breaks under the American Rescue Plan Act of 2021 for continuation health coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).

Notice 2021-31 provides assistance to employers, plan administrators, and health insurers regarding the new credit available to them because of their providing continuation health coverage to certain individuals under COBRA. The notice also contains information on the calculation credit, how individuals are eligible, the premium assistance period, information vital to employers, plan administrators, and insurers to understand the credit.

The American Rescue Plan allows for a temporary 100% reduction in the premium that individuals would need to pay when they choose COBRA continuation health coverage following a reduction in hours or involuntary termination of employment. The implementation of the new law provides a tax credit along with it for entities that maintain group health plans which includes, employers, multiemployer plans, and insurers. The 100% reduction in the premium and the credit are accessible for events under comparable state laws which can also be referred to as “mini-COBRA.”

COBRA provides assistance for certain former employees, retirees, spouses, former spouses, and dependent children by allowing access to temporary continuation of health coverage at group rates. COBRA typically covers health plans that are maintained by private-sector employers with 20 or more full-time and part-time employees. COBRA also provides coverage for employee organizations or federal, state, or local governments. State mini-COBRA laws often provide similar benefits that are accessible for insured small employers and are not subject to Federal COBRA.

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 may have to pay back some of the new $3,000 Child Tax Credit

The IRS is expected to begin distributing monthly payments for the enhanced child credit beginning in July. Some recipients of this child credit need to be aware that they may be obligated to pay back a portion of those funds at the start of tax time next year.

The passing of the American Rescue Plan allows for advance payments of the child tax credit to be issued out to qualifying taxpayers in periodic installments. Americans can receive up to $300 a month per child, however, the child credit advance payments will be estimated by the IRS based on the available data they have on file for an individual such as income, marital status and number and age of qualifying kids.

 If the IRS has outdated data on an individual, this may trigger an overpayment of the tax credit. This will require the individual who received the additional money to pay back any excess funds. Receiving the advance payment could mean it could reduce the refund amount or increase the tax payment for an individual come next tax season.

The IRS references 2020 tax returns and if unavailable, 2019 returns, in order to determine a taxpayer’s total tax credit amount for 2021.  The American Rescue Plan raised the maximum credit amount to $3,000 per kid ages 6 to 17, and $3,600 for younger children. The remaining half would be claimed during tax season next year.

An individual may receive a tax bill if a payer’s income increases dramatically from the income reported on a 2020 return. This may also reduce someone’s credit amount or disqualify them based off their earnings.

The Treasury Department created an online portal for taxpayers to update their information if it changed during the calendar year. The portal allows individuals to change the following: marital status, income changes and number of kids.

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 extends e-signature authorization for 6 months

On December 11, 2020, the IRS announced that they would be extending and accepting electronic or digital signatures on certain tax forms that previously could not be electronically signed. The original authorization was from August 28 through December 31, 2020. However, due to the ongoing public health crisis, that period has now been extended from January 1 through June 30, 2021.

The IRS will allow the following forms to be e-signed remotely before being printed and mailed to the agency. The IRS believes that this will help assist tax professionals and their taxpayer clients by minimizing the need for in-person contact. 

Here is the list of forms that can be e-signed: 

  • Form 11-C, Occupational Tax and Registration Return for Wagering 
  • Form 1066, U.S. Income Tax Return for Real Estate Mortgage Investment Conduit 
  • Form 637, Application for Registration (For Certain Excise Tax Activities) 
  • Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return 
  • Form 706-A, U.S. Additional Estate Tax Return 
  • Form 706-GS(D), Generation-Skipping Transfer Tax Return for Distributions 
  • Form 706-GS(D-1), Notification of Distribution from a Generation-Skipping Trust
  • Form 706-GS(T), Generation-Skipping Transfer Tax Return for Terminations 
  • Form 706-QDT, U.S. Estate Tax Return for Qualified Domestic Trusts 
  • Form 706, Schedule R-1, Generation Skipping Transfer Tax 
  • Form 706-NA, U.S. Estate (and Generation-Skipping Transfer) Tax Return
  • Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return 
  • Form 730, Monthly Tax Return for Wagers 
  • Form 1120-C, U.S. Income Tax Return for Cooperative Associations 
  • Form 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation 
  • Form 1120-H, U.S. Income Tax Return for Homeowners Associations 
  • Form 1120-IC DISC, Interest Charge Domestic International Sales — Corporation Return
  • Form 1120-L, U.S. Life Insurance Company Income Tax Return 
  • Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons 
  • Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return 
  • Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts 
  • Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies 
  • Form 1120-SF, U.S. Income Tax Return for Settlement Funds (Under Section 468B) 
  • Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship
  • Form 1128, Application to Adopt, Change or Retain a Tax Year
  • Form 2678, Employer/Payer Appointment of Agent 
  • Form 3115, Application for Change in Accounting Method 
  • Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts 
  • Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner 
  • Form 4421, Declaration — Executor’s Commissions and Attorney’s Fees 
  • Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes
  • Form 8038, Information Return for Tax-Exempt Private Activity Bond Issues
  • Form 8038-G, Information Return for Tax-Exempt Governmental Bonds 
  • Form 8038-GC; Information Return for Small Tax-Exempt Governmental Bond Issues, Leases, and Installment Sales 
  • Form 8283, Noncash Charitable Contributions 
  • Form 8453 series, Form 8878 series, and Form 8879 series regarding IRS e-file Signature Authorization Forms 
  • Form 8802, Application for U.S. Residency Certification 
  • Form 8832, Entity Classification Election 
  • Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent 
  • Form 8973, Certified Professional Employer Organization/Customer Reporting 
  • Agreement
  • Elections made pursuant to Sec. 83(b) 

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 can opt out of Child Tax Credit monthly payments

The expanded child tax credit was established in the American Rescue Plan which was signed into law in March. The maximum enhanced child credit is $3,600 for children younger than the age of 6 and $3,000 for those between the ages of 6 and 17.

The credit will be issued out as an advance on 2021 taxes in monthly installments. Households that receive the full amount of these payments should expect to get $300 per month for children under the age of 6 and $250 for those between the ages of 6 and 17.

Who qualifies for the full credit?

The full credit is available for married couples who filed their taxes jointly, have children and an adjusted gross income of less than $150,000, or $75,000 for individuals. The credit is set to phase out for taxpayers who make a higher income. Individuals who earn $95,000 and married couples earning $170,000 filing jointly will be disqualified from receiving the credit.

Taxpayers that make too high of an income to receive the expanded child tax credit may still be eligible for the regular child tax credit, which is $2,000 per child under the age of 17 for families making less than $200,00 annually, or $400,000 for married couples.

How to qualify for the new child tax credit

For the most part, eligible families will not have to do anything at the moment. The IRS will utilize 2020 tax returns to determine eligibility or 2019 returns for those who have yet to file their taxes. The IRS began sending out 36 million letters to families that may be eligible to receive both the credit and the monthly payments.

Families that typically do not file their taxes because their income does not meet the income threshold standards in order to file a return but have children in their household who are eligible, can now sign up for the benefit.

How will payments be sent?

Taxpayers who opted for direct deposit and placed their banking information on their tax return in order to receive their tax refund can expect to also receive the monthly child tax credit via direct deposit. For those who do not have direct deposit, the IRS will send out paper checks and debit cards to some families.

Can I opt out? What will happen?

Families that do not want to receive the monthly payments for the credit, can opt out through the IRS portal. Once a person opts out of the payments, they will no longer get the monthly amounts but will still receive the full credit they are eligible for when they file their 2021 taxes.

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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