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April 22, 2020 update
Do You Have to Pay Back Your Stimulus Payment?
I’m receiving a lot of questions regarding the stimulus payments:
• Are they taxable?
• Do you have to pay it back?
• Does it affect your tax refund/liability for your 2020 return?
Technically, the stimulus payment you have or are about to receive, is an advance payment of a new refundable tax credit for your 2020 Form 1040 tax return (this is the return you will file in 2021).
What is the difference between a refundable and non-refundable tax credit? When you're eligible to claim a credit that's refundable and if it's more than your total tax liability, you will receive payment for the balance of the money. By contrast, a nonrefundable credit can only reduce your federal income tax liability to zero. Any part of the credit that's left over is not refunded back to you. The IRS gets to keep that part of the money.
The stimulus payment you receive this year is going to be your minimum amount. You don’t have to repay it or pay taxes on it. Let me explain.
You will “True Up” your advance tax credit on your 2020 Form 1040 which you will file in 2021:
• If the stimulus payment you receive is less than the credit you qualify for based on your 2020 Adjusted Gross Income (AGI), then you’ll get the difference back as a refundable tax credit in 2021 after you file your 2020 tax return.
• If the stimulus payment you receive is greater than the credit you qualify for based on your 2020 Adjusted Gross Income (AGI), you have a windfall. You don’t have to pay the cash back to the IRS.
• Your current tax debts will not interfere with the cash amount you have or are about to receive. There are no offsets for outstanding tax debts.
The only exception to this is an offset for past-due child support that is reported to the IRS by a state. In this case, the IRS will take the child support money from the advance tax credit before remitting any money to the taxpayer.
For our clients who qualify for the stimulus payment, we’re working hard to maximize your payment by evaluating your 2018 vs 2019 AGI and not filing your returns if it is detrimental to do so. An example will help explain why.
Example. You filed a 2018 Form 1040 (Single) with AGI of $70,000 and no dependents. Your 2019 Form 1040 (Single), which you did not file yet, has an AGI of $105,000 and no dependents.
If you file your 2019 return now, you will not get a stimulus payment for the advance credit because your AGI would have phased out your entire credit.
But if you don’t file your 2019 return now, you will receive a $1,200 stimulus payment. Fast-forward to your 2020 tax return – say your 2020 Form 1040 has AGI of $110,000. It’s over the threshold. No problem. Under the rules, you keep the $1,200.
With all the programs available with the CARES ACT and stimulus payments, we’re working hard to manage all these in conjunction with strategizing to maximize your tax credits and reduce your tax liabilities.
If you have any questions let us know! We hope everyone is safe and healthy!
Do you know how the Families First Coronavirus Response Act will impact you, your business, and employees?
❓ ❓ ❓
The Families First Coronavirus Response Act (FFCRA) provides benefits such as paid sick leave, free coronavirus testing, expanded food assistance and unemployment benefits, and requires that employees provide additional safeguards for health care workers.
Learn more here! ⬇️
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mmillercpa.com Learn how Families First Coronavirus Response Act will impact you, your business, and employees. Families First Coronavirus Response Act Provides Benefits and Tax Relief for Many The Families First Coronavirus Response Act (FFCRA), passed by Congress and
April 21, 2020 update
COVID-19: CARES Act Allows $100,000 Tax-Free IRA Grab and Repay
More Relief: Retirement Account Required Minimum Distribution Rules Suspended for 2020
The $2 trillion COVID-19 economic recovery bill finally made it through Congress and was signed into law by President Donald Trump on March 27.
The legislation is titled the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). It’s a daunting 880 pages long, but it contains good news for individuals and businesses, including meaningful tax relief.
This article explains two tax relief measures that can potentially benefit IRA and retirement account owners. Here goes.
COVID-19-Related Distributions from IRAs Get Tax-Favored Treatment
If you are an IRA owner who has been adversely affected by the COVID-19 pandemic, you are probably eligible to take tax-favored distributions from your IRA(s).
For brevity, let’s call these allowable COVID-19 distributions “CVDs.” They can add up to as much as $100,000. Eligible individuals can recontribute (repay) CVD amounts back into an IRA within three years of the withdrawal date and can treat the withdrawals and later recontributions as federal-income-tax-free IRA rollover transactions.1
In effect, the CVD privilege allows you to borrow up to $100,000 from your IRA(s) and recontribute the amount(s) at any time up to three years later with no federal income tax consequences.
There are no income limits on the CVD privilege, and there are no restrictions on how you can use CVD money during the three-year recontribution period.
If you’re cash-strapped, use the money to pay bills and recontribute later when your financial situation has improved. Help your adult kids out. Pay down your HELOC. Do whatever you want with the money.
Eligible individuals can take one or more CVDs up to the $100,000 aggregate limit, and these can come from one or several IRAs. The three- year recontribution period for each CVD begins on the day after you receive it.
You can make recontributions in a lump sum or make multiple recontributions. You can recontribute to one or several IRAs, and they don’t have to be the same account(s) you took the CVD(s) from in the first place.
As long as you recontribute the entire CVD amount within the three-year window, the transactions are treated as tax-free IRA rollovers. If you’re under age 59 1/2, the dreaded 10 percent penalty tax that usually applies to early IRA withdrawals does not apply to CVDs.2
If your spouse owns one or more IRAs in his or her own name, your spouse is apparently eligible for the same CVD privilege if he or she qualifies (see below).
Do I Qualify for the CVD Privilege?
That’s a good question. Some IRA owners will clearly qualify, while others may have to wait for IRS guidance. For now, here’s what the CARES Act says.3
A COVID-19-related distribution is a distribution of up to $100,000 from an eligible retirement plan, including an IRA, that is made on or after January 2, 2020, and before December 31, 2020, to an individua
• who is diagnosed with COVID-19 by a test approved by the Centers for Disease Controland Prevention; or
• whose spouse or dependent (generally a qualifying child or relative who receives more than half of his or her support from you) is diagnosed with COVID-19 by such a test; or
• who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, or forced to reduce work hours due to COVID-19; or
• who is unable to work because of a lack of child care due to COVID-19 and experiences adverse financial consequences as a result; or
• who owns or operates a business that has closed or had operating hours reduced due to COVID-19, and who has experienced adverse financial consequences as a result; or
• who has experienced adverse financial consequences due to other COVID-19-related factors to be specified in future IRS guidance.
We await IRS guidance on how to interpret the last two factors. We hope and trust that the guidance will be liberally skewed in favor of IRA owners. We shall see.
What If I Don’t Recontribute a CVD within the Three-Year Window?
Another good question. You will owe income tax on the CVD amount that you don’t recontribute within the three-year window, but you don’t have to worry about owing the 10 percent early withdrawal penalty tax if you are under age 59 1/2.
If you don’t repay, you can choose to spread the taxable amount equally over three years, apparently starting with 2020.4
Example. Tomorrow you withdraw $90,000 from your IRA, and you don’t recontribute it and don’t elect out of the three-year spread; you have
$30,000 of taxable income in years 1, 2, and 3.
Here it gets tricky, because the three-year recontribution window won’t close until sometime in 2023. Until then, it won’t be clear that you failed to take advantage of the tax-free CVD rollover deal.
So, you may have to amend a prior-year tax return to report some additional taxable income from the three-year spread. The language in the CARES Act does not address this issue, so the IRS will have to weigh in. Of course, the IRS may not be in a big hurry to issue guidance right now, because it has three years to mull it over.
You also have the option of simply electing to report the taxable income from the CVD on your 2020 Form 1040. You won’t owe the 10 percent early withdrawal penalty tax if you are under age 59 1/2.5
Can the One-IRA-Rollover-Per-Year Limitation Prevent Me from Taking Advantage of the CVD Deal?
Gee, you ask a lot of good questions. The answer is no, because when you recontribute CVD money within the three-year window, it is deemed to be done via a direct trustee-to-trustee transfer that is exempt from the one-IRA-rollover-per-year rule. So, no worries there.6
Can I Take a CVD from My Company’s Tax-Favored Retirement Plan?
Yes, if your company allows it. The tax rules are similar to those that apply to CVDs taken from IRAs.7
That said, employers and the IRS have lots of work to do to figure out the details for CVDs taken from employer-sponsored qualified retirement plans. Stay tuned for more information.
More Good News: Retirement Account Required Minimum Distribution Rules Are Suspended for 2020
In normal times, after reaching the magic age, you must start taking annual required minimum distributions (RMDs) from traditional IRAs set up in your name (including SEP-IRA and SIMPLE-IRA accounts) and from tax-favored company retirement plan accounts. The magic age is 70 1/2 if you attained that age before 2020 or 72 if you attain age 70 1/2 after 2019.8
And you must pay income tax on the taxable portion of your RMDs. Ugh!9
Thankfully, the CARES Act suspends all RMDs that you would otherwise have to take in 2020.
The suspension applies equally to your initial RMD if you turned 70 1/2 last year and did not take that initial RMD last year (the initial RMD is actually for calendar year 2019). Before the CARES Act, the deadline for taking that initial RMD was April 1, 2020. Now, thanks to the CARES Act, you can put off any and all RMDs that you otherwise would have had to take this year. Good!
For 2021 and beyond, the RMD rules will be applied as if 2020 never happened. In other words, all the RMD deadlines will be pushed back by one year, and any deadlines that otherwise would have applied for 2020 will simply be ignored.10
The CVD privilege can be a very helpful and very flexible tax-favored financial arrangement for eligible IRA owners.
• You can get needed cash into your hands right now without incurring the early withdrawal penalties.
• You can then recontribute the CVD amount anytime within the three-year window that will close sometime in 2023—depending on the date you take the CVD—to avoid any federal income tax hit.
The suspension of RMDs for this year helps your 2020 tax situation, because you avoid the tax hit on RMDs that you otherwise would have had to withdraw this year.
1. CARES Act, Sections 2202(a)(2) through 2202(a)(5).
2. Basically, the CVD withdrawal and recontribution rules are the same as for IRA withdrawals and subsequent rollovers, under IRC Section 408(d)(3), except you get three years to put CVD money back into your IRA to avoid triggering a tax bill—instead of the 60-day recontribution window that applies under the regular IRA rollover rules. See Sections 2204(a)(3)(A) and 2204(a)(3)(C) of the CARES Act. The 10 percent early withdrawal penalty tax is imposed by IRC Section 72(t), but Section 2202(a)(1) of the CARES Act exempts CVDs from the 10 percent penalty tax.
3. CARES Act, Section 2202(a)(4)(A).
4. CARES Act, Section 2202(a)(5)(A).
5. CARES Act, Sections 2202(a)(1); 2202(a)(5)(A).
6. CARES Act, Section 2202(a)(3)(C); IRS Announcements 2014-15; 2014-32.
7. CARES Act, Sections 2202(a(3)(A); 2202(a)(3)(B).
8. IRC Section 401(a)(9).
9. If you don’t take at least the RMD amount for the year, you can get slammed with a 50 percent penalty tax on the shortfall, under IRC Section 4973.
10. CARES Act, Section 2203.
Visit our Resource Center for imperative information on CARES Act and COVID-19. ✔️ ‼️
We have helpful facts and tips regarding disaster assistance loans, #tax relief, adjustments to FMLA and paid sick leave, and much more. 😃
mmillercpa.com Resources IMPORTANT! CARES Act and COVID-19 Resource Center Information on Accessing IRS Get My Payment Economic Impact Payments Paycheck Protection Program (PPP) Loan Instructions and Tips The Top 10 Questions about the Tax Deadline Extension CARES Act Overview: The
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If you currently own or manage a small business, you’ve probably experienced an extremely high demand or you’re preparing for the worst – to be shuttered by law for a few weeks or longer.
In either case, your business needs a whopping dose of resilience right now. Here are four steps to safeguard your business and discover where you need to build resiliency.
mmillercpa.com If you currently own or manage a small business, you’ve probably experienced an extremely high demand or you’re preparing for the worst – to be shuttered by law for a few weeks or longer. In either case, your business needs a whopping dose of resilience right now.
Our goal is to create wealth for our clients and we are looking to work with clients who are serious and intentional about growing their business. If this is you, contact us today!
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Right now, we’re experiencing uncertain, difficult times. These times can be more challenging if you currently owe the IRS money and can’t pay it.
We offer professional services to help make this situation as painless as possible. Learn more now! ⬇️
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IRS unveil online application to help with Economic Impact Payments; Get My Payment allows people to provide direct deposit information and gives payment date
WASHINGTON – Working with the Treasury Department, the Internal Revenue Service today unveiled the new Get My Payment with features to let taxpayers check on their Economic Impact Payment date and update direct deposit information.
With an initial round of more than 80 million Economic Impact Payments starting to hit bank accounts over the weekend and throughout this week, this new tool will help address key common questions. Get My Payment will show the projected date when a deposit has been scheduled, similar to the “Where’s My Refund tool” many taxpayers are already familiar with.
Get My Payment also allows people a chance to provide their bank information. People who did not use direct deposit on their last tax return will be able to input information to receive the payment by direct deposit into their bank account, expediting receipt.
“Get My Payment will offer people with a quick and easy way to find the status of their payment and, where possible, provide their bank account information if we don’t already have it,” said IRS Commissioner Chuck Rettig. “Our IRS employees have been working non-stop on the Economic Impact Payments to help taxpayers in need. In addition to successfully generating payments to more than 80 million people, IRS teams throughout the country proudly worked long days and weekends to quickly deliver Get My Payment ahead of schedule.”
Get My Payment is updated once daily, usually overnight. The IRS urges taxpayers to only use Get My Payment once a day given the large number of people receiving Economic Impact Payments.
How to use Get My Payment
Available only on IRS.gov, the online application is safe and secure to use. Taxpayers only need a few pieces of information to quickly obtain the status of their payment and, where needed, provide their bank account information.
Having a copy of their most recent tax return can help speed the process.
For taxpayers to track the status of their payment, this feature will show taxpayers the payment amount, scheduled delivery date by direct deposit or paper check and if a payment hasn’t been scheduled. They will need to enter basic information including:
• Social Security number
• Date of birth, and
• Mailing address used on their tax return.
Taxpayers needing to add their bank account information to speed receipt of their payment will also need to provide the following additional information:
• Their Adjusted Gross Income from their most recent tax return submitted, either 2019 or 2018
• The refund or amount owed from their latest filed tax return
• Bank account type, account and routing numbers
Get My Payment cannot update bank account information after an Economic Impact Payment has been scheduled for delivery. To help protect against potential fraud, the tool also does not allow people to change bank account information already on file with the IRS.
A Spanish version of Get My Payment is expected in a few weeks.
Don’t normally file a tax return? Additional IRS tool helps non-filers
In addition to Get My Payment, Treasury and IRS have a second a new web tool allowing quick registration for Economic Impact Payments for those who don’t normally file a tax return.
The Non-filers: Enter Payment Info tool, developed in partnership between the IRS and the Free File Alliance, provides a free and easy option designed for people who don’t have a return filing obligation, including those with too little income to file. The new web tool is available only on IRS.gov, and users should look for Non-filers: Enter Payment Info Here to take them directly to the tool.
Non-filers: Enter Payment Info is designed for people who did not file a tax return for 2018 or 2019 and who don’t receive Social Security retirement, disability (SSDI), or survivor benefits and Railroad Retirement benefits. Additional information is available https://www.irs.gov/coronavirus/non-filers-enter-payment-info-here.
No action needed by most taxpayers
Eligible taxpayers who filed tax returns for 2019 or 2018 will receive the payments automatically. Automatic payments will also go in the near future to those receiving Social Security retirement, or disability (SSDI), or survivor benefits and Railroad Retirement benefits.
General information about the Economic Impact Payments is available on a special section of IRS.gov: https://www.irs.gov/coronavirus/economic-impact-payment-information-center.
Watch out for scams related to Economic Impact Payments
The IRS urges taxpayers to be on the lookout for scams related to the Economic Impact Payments. To use the new app or get information, taxpayers should visit IRS.gov. People should watch out for scams using email, phone calls or texts related to the payments. Be careful and cautious: The IRS will not send unsolicited electronic communications asking people to open attachments, visit a website or share personal or financial information. Remember, go directly and solely to IRS.gov for official information.
The IRS will post frequently asked questions on IRS.gov/coronavirus and will provide updates as soon as they are available.
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