Within the coronavirus pandemic are tax planning opportunities. Here are a few to consider.

The IRS recently announced the launch of web sites for non-tax filers to register to receive their economic impact payment and a new Get My Payment tool. Here is what you need to know.

Background

As a response to the coronavirus pandemic, the government is sending $1,200 to single taxpayers with income less than $75,000 ($98,000 with phaseouts). $2,400 is being sent to married taxpayers with income less than $150,000 ($198,000 with phaseouts). An additional $500 is being sent for each child under the age of 17.

The Problem

The payments are being made based on 2019 or 2018 tax returns. If you do not need to file a tax return, you run the risk of not receiving this payment. Additionally, getting payments out to everyone is technically complex. The IRS must look at both 2019 tax returns and 2018 tax returns, PLUS they are directed by Congress to match these files against two years of Social Security filings for seniors. Not an easy task!

The Solution

The IRS worked to launch a way to register to receive your payment and to determine the status of your payment. You can find the sites here:

For non-filers: Submit information to receive an Economic Impact Payment

Payment status and direct deposit registration: There is also an IRS provided Get Your Payment tool to register to receive your payment via direct deposit.

It can be found here: Get My Payment Tool

This tool will also be used to review the status of your payment.

Who should use

If you fall into one of these cases, you need to review whether it makes sense to use these tools.

Not required to file. If you have not filed a tax return in either 2018 or 2019, using the non-filer tool or other tax filings methods is the only way to receive the payment.

College students. If you are not a dependent on someone else’s tax return, you need to look into using the non-filer tool. If you are a dependent, it may also be worth a conversation to see if you can or should change your filing status in 2019 in order to receive this payment.

Non-filer. Even if you know you need to file a tax return, but have not yet done so, consider using the tool. You will still need to file a tax return, but in the meantime, you can receive your payment.

Seniors. Seniors that do not file tax returns in 2018 or 2019 will eventually receive the payment based upon their form 1099-SA or railroad retirement information. The non-filer site asks you not to register, but you may receive the payment sooner AND protect your identity from would be thieves by filing a tax return.

To check on status or speed things up. Want faster payment? Payment not yet received? Use the Get My Payment tool to help understand the status of your payment.

The Economic Impact Payments are now officially being sent out, so the sooner you let the IRS know that your payment should be included, the sooner your payment will arrive.

In addition to filing delays and stimulus payments, the IRS is implementing many changes in response to the coronavirus pandemic. Here are some of the major topics that could affect you and your family.

Early distribution penalty waived

The 10% early distribution penalty on up to $100,000 of retirement withdrawals for coronavirus-related reasons is waived during 2020. New provisions allow tax liabilities on these distributions to be paid over a three-year period. The new rules also allow individuals to return these distributions to the retirement account over a three-year period and not be subject to annual contribution limits.

Action: This could be a great way to handle emergency payments until you receive a stimulus check, unemployment payments, or a pending small business loan.

Required minimum distributions (RMDs) waived for 2020

Required minimum distributions (RMDs) in the year 2020 for various retirement plans is suspended. The corresponding 50% penalty associated with not taking an RMD is also suspended in 2020.

Action: Taking out distributions when the market takes a tumble can hurt retirement income for many years. This change allows you to wait to let the value in your retirement account rebound before you withdraw funds.

IRS installment agreement suspension

The IRS announced suspension of payments of all amounts due from April 1 through July 15, 2020 and will not be in default on any IRS installment agreement during this period. Interest will continue to accrue on these installment agreements.

Action: Being on the bad side of the IRS is never fun. If you currently have an IRS installment agreement, look to take advantage of this delay.

Offers-in-compromise

The IRS will allow you until July 15, 2020 to provide additional requested information for any pending offers-in-compromise (OIC) and will not close out the OIC during this time without your consent. The IRS is also suspending any payments due under an OIC until July 15, 2020.

Enforcement activities suspended? Not so fast…

The filing and enforcement of liens and levies will generally be suspended. However, IRS Revenue Officers will continue to pursue high income non-filers and initiate other actions when warranted.

No new audits

The IRS will not initiate new audits during this time, but will act to protect the statute of limitations.

Much is happening during this unique time in our country’s history. Rest assured, as changes are made you will be informed. In the meantime, please keep yourself and your family safe.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act recently signed into law provides a one-time payment, among other items, to individuals to help ease the economic strain caused by the coronavirus epidemic.

Here are the details of the stimulus payment initiative.

Who qualifies to receive a payment? A one-time payment of $1,200 will be sent to most adults. For every qualifying child under age 17, families will receive an additional $500. Retirees and people on disability are also eligible to receive a payment.

When will I get my payment? The IRS hopes to get the first batch of payments out the week of April 6. It may take up to a month for everyone to get their payment, assuming everything goes as planned.

How are payments being made? If you included your bank account and routing information on your 2019 tax return, you will receive your stimulus payment via direct deposit. If you haven’t filed your 2019 tax return, the IRS will use information from your 2018 tax return. If you did not include your bank account and routing information on either your 2019 or 2018 tax returns, the IRS will allow you to request direct deposit from a screen (under development) from their website. All others will receive their payment via a check in the mail.

Alert! Invalid bank information. If you have not filed your 2019 tax return AND the direct deposit information on your 2018 tax return is no longer valid (you have a new bank account or closed your old one), you will need to take action immediately! If you do nothing, the bank deposit will, hopefully, be rejected and you will receive your check in the mail. Expect a delay, however, as it may take some time to receive a check by mail. You can also try calling the IRS to update your information.

Will I get the entire amount? As with other government programs, there is an income phaseout. Here are the thresholds:

Single adults with income of $75,000 or less get the full $1,200. The $1,200 payment is reduced by $5 for every $100 in income above $75,000. Full income phaseout is $99,000.

Married couples with income of $150,000 or less get the full amount of $2,400. The payment is reduced by $5 for every $100, making the full payment phased out at $198,000.

Head of Household adults (normally single adults with children or other dependents) will receive the full $1,200 payment if they earn less than $112,500. Reduced amounts will go out to Head of Household adults who earn up to $136,500.

How will my income be calculated? Your 2019 tax return will be used to determine your income for purposes of whether you receive the full amount of the stimulus payment and how many qualifying children you have. If you haven’t filed your 2019 tax return, your 2018 tax return will be used.

Alert! File a tax return. If you have low income or someone who does not typically file a tax return, you may wish to do so. A simple tax filing is all that is needed to ensure you receive the stimulus payment. Eventually, instructions to do this will be available on www.irs.gov/coronavirus.

Senior Alert! Seniors who did not file a tax return in 2018 or 2019 will automatically receive the payment based upon forms 1099-SSA and RRB-1099s. (April 1, 2020 U.S. Treasury press release)

Alert! Don’t use my current situation. It may make sense to get your 2019 tax return in immediately. Figure out if phaseouts using last year’s information lowers your payment amount. If so, you may wish to file your 2019 now. So pull out last year’s return and take a look!

Are the payments taxable? No. These payments are not taxable.

Remember, this is only one of the many relief components in recently passed legislation. There are also unemployment benefits, small business benefits and much more to come.

This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here. This publication includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this web page. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does Willis & Jurasek have any control over, or responsibility for, the content of any such Websites. All rights reserved.

The tax deadlines move from the April 15th tax deadline to July 15th, per U.S. Treasury Secretary Steven Mnuchin. These announcements were made on Tuesday, March 17, 2020 and Friday March 20, 2020 with payment and penalty delays confirmed by an IRS notice.

Here is what you need to know

• While the filing deadline for individual income tax returns, Form 1040, is April 15, 2020 per IRS notice 2020-17, published this Wednesday, the Treasury Secretary announced moving Tax Day to July 15, 2020 on Friday March 20, 2020.*
• Individuals who owe the IRS money will be able to defer up to $1 million in payments for 90 days without interest or penalties. The new effective payment due date is July 15, 2020.
• Corporations who owe the IRS money will be able to defer up to $10 million in payments for the same 90 days without interest or penalties.
• The delay also includes first quarter, 2020 estimated tax payments for individuals. These payments are now due on or before July 15, 2020. This estimated payment delay DOES NOT apply to corporations.

* Late Breaking Alert: At 9:30 CST, Friday March 20, 2020 Treasury Secretary, Steven Mnuchin tweeted the following: “At @realDonaldTrump’s direction, we are moving Tax Day from April 15 to July 15. All taxpayers and businesses will have this additional time to file and make payments without interest or penalties.” The IRS retweeted this message.

What it means for you

While the federal government grants you an additional 3 months to pay your 2019 taxes, you may wish to file an extension or still file your tax return by April 15. Here are some thoughts on different situations.

You anticipate a refund. For now, the IRS is still issuing refunds as normal. For e-filers, refunds are often sent in less than three weeks. If the IRS is forced to scale back its operations for safety reasons, your refund could be delayed.

A better solution: an extension. If you cannot complete your tax return by April 15, consider filing an extension, even with the Treasury Secretary’s announcement. This moves your filing deadline to October 15. In the case of an extension under these new rules, your tax return would be due on or before October 15, 2020, but your tax payment is now due on or before July 15, 2020.

What about the audit window? The IRS normally has three years to audit a tax return. The three-year window to audit a return typically starts on either the tax return due date or the filing date, whichever is later. If shortening the audit window is important to you, consider filing sooner versus later as it is not clear what these delays in filing will do to audit rights.

What will states do? States are rolling out their own guidelines for extensions. Some are waiting on the IRS, while others are acting independently. Since most states require copies of federal tax return information, be prepared to still file by April 15. Remember, even if you wait until later to file your federal return and pay your tax, you may have to file your state and/or local return sooner.

What if I get a penalty anyway? Affected taxpayers subject to penalties and additional tax despite this relief may seek a waiver of them.

Rest assured, as the rules and deadlines change, updates will be provided. In the meantime, please stay safe during this challenging time.

Parents of young children will always have plenty to worry about. New tax legislation passed at the end of 2019 eliminates at least one of these worries. The new law repeals a provision that increased the tax a child had to pay on unearned income.

Best of all, these revised “kiddie tax” rules may be claimed retroactive to 2018, when the change initially took effect. It’s as if it never happened!

The kiddie tax rule

If a dependent child under age 19 or a full-time student under age 24 receives unearned income above an annual threshold, the amount of income above this threshold is generally subject to a higher tax. Unearned income includes income received from investments, dividends and interest income.

The annual threshold, which is indexed for inflation, is $2,200 on 2019 and 2020 tax returns.

Children’s unearned income above this $2,200 threshold was historically taxed at the parents’, usually higher, tax rate.

The (often painful) change

Through the 2017 tax year, a child’s unearned income avoided the parents’ top marginal rate of 37% as long as the parents’ taxable income didn’t exceed $500,000. In 2018, kids got ensnared in the 37% top tax rate after their own unearned income hit $12,500!

The result? Many kids paid significantly more taxes in 2018 because of the new kiddie tax rules.

What you need to know

New legislation now restores the old method of calculating the kiddie tax. The tax is once again based on the parents’ marginal tax rate. But more importantly, you can choose to have the fix apply to 2018 and 2019. While this change will be reflected in your 2019 tax return, you may need to review your 2018 tax return to see if it makes sense to file an amended return.

The good news is you have some time to make this decision while you focus on getting ready to file this year’s tax return.

Tax Form 1095 has been nothing but a headache since its introduction. This federally mandated form adds complexity, creates taxpayer confusion, and cost billions of dollars to produce. The purpose of the form is simple: to relay proof of your health insurance coverage, but too many taxpayers are now delaying filing tax returns while waiting for this form.

Top line: STOP WAITING for the form to file your tax return! At least for most of you.

Background

As part of the Affordable Care Act, Form 1095 was created to confirm whether you have qualified health insurance and for how many months you have coverage. The proof of coverage includes you, your spouse, and all your dependents covered by the plan for each month of the year. Form 1095 was very difficult to create and for the past number of years, the IRS has granted delays to health insurance providers issuing the form because of the complexity required to create it.

The form is used for two reasons:

• To determine whether you will be fined for not having qualified health insurance.
• To help determine your qualification to receive a health insurance Premium Tax Credit.

Current situation

• The penalty for not having health insurance is no longer in force for the foreseeable future.
• You need confirmation of health insurance if you purchase your policy through the Marketplace.* You will need the form to see if you qualify for the Premium Tax Credit and to reconcile advanced payments of this credit. The version of the form you receive in the mail will be Form 1095-A.
• Health insurance providers are still required to provide you with the form.

What you need to know

Do not wait for this form: Remember, you no longer need Form 1095 to file your tax return if you do not have health insurance or you receive your health insurance through your employer.

Wait for the form if: You think you may qualify for the health insurance Premium Tax Credit and you purchase your health insurance through the Marketplace (Form 1095-A).

So for most taxpayers the answer is clear. Stop waiting for Form 1095 and proceed with tax filing for 2019.

* Marketplace. This refers to the Health Insurance Marketplace set up by the federal government and many states to offer individuals, families and small businesses health insurance options that comply with the 2010 Affordable Care Act.

Recent legislation makes changes to popular retirement savings plans like IRAs and 401(k)s. Here are the major changes and how you can benefit from the new rules.

You now have until age 72 before you MUST take withdrawals from your retirement accounts.

How to take advantage: Use these extra 18 months to create a plan to reduce the tax applied to your distributions. Who wouldn’t rather pay less of your retirement funds to the government!

There are no longer age limits for contributions to a traditional IRA.

How to take advantage: Consider taking a part-time job in retirement. Then you can choose to contribute to EITHER a Roth IRA or a traditional IRA.

No early withdrawal penalty to use up to $5,000 to pay for a recent birth or adoption.

How to take advantage: A new birth or adoption costs a lot! Consider using these funds to help cover some of the cost. While you will pay tax on the funds taken out of your IRA, you will not need to pay the 10% early withdrawal penalty. And even better, you can later reimburse your account without impacting your annual contribution limit.

Elimination of the stretch IRA-Beneficiaries now have 10 years to withdraw inherited funds.

How to take advantage for your estate: Not everyone is covered by this new restriction. Review your beneficiary designations to minimize the impact of this change.

How to take advantage if you inherit funds: If you inherit funds, you must now actively plan the withdrawals to minimize your potential tax hit!

Key business retirement plan changes

Many changes are also made to business retirement plan rules. Key among them are:

• Qualified part-time employees may now participate in an employer’s 401(k) plan.
• Your employer can now proactively increase your participation in their retirement plan.

How to take advantage: Talk to your employer. Find out if part-time workers may participate in their savings plan and double check the amount withheld from your paycheck to ensure you are comfortable with your level of participation.

The bottom line? Actively manage your retirement accounts! If you leave it to chance, your tax bill will inevitably be higher than necessary.