Text Resize
Print
Email
Subsribe to RSS Feed

Thursday May 6, 2021

Washington News

Washington Hotline

$242 Billion in Economic Impact Payments

On March 17, the IRS announced it had issued over 90 million Economic Impact Payments (EIPs). The initial distribution of payments is over $242 billion.

The distribution of payments started on March 12 and were sent primarily to individuals who provided direct deposit information on 2019 or 2020 tax returns. The Treasury Department also sent approximately 150,000 paper checks with a total value of $442 million.

The IRS published a fact sheet to explain the details of this third round of Economic Impact Payments.
  1. Economic Impact Payment Amount — The payments are $1,400 for individuals, $2,800 for married couples and an additional $1,400 for every eligible dependent. Eligible dependents are not just qualifying children under 17, as was the case with the first stimulus checks. A family of four may receive an Economic Impact Payment of $5,600.
  2. Who is Eligible — Payments are sent to U.S. citizens or U.S. resident aliens with a valid Social Security Number who are not dependents of another taxpayer. Individual taxpayers with incomes under $75,000 or married couples with incomes under $150,000 are eligible for full payments. If you have income in excess of these amounts, the Economic Impact Payment is phased out over the next $5,000 of income for individuals and $10,000 married couples. Individuals with incomes over $80,000 and married couples with incomes over $160,000 will not receive EIPs.
  3. Automatic Economic Impact Payments — Most taxpayers will receive the payment without any action. Automatic payments will be made to taxpayers who filed a 2019 or 2020 tax return, have registered for a previous Economic Impact Payment using the Non–Filers portal on IRS.gov or are federal benefit recipients. The IRS will send an EIP to federal benefit recipients even if they do not file tax returns, but receive Social Security, Railroad Retirement Board benefits, Supplemental Security Income or veterans' benefits.
  4. Find Out If You Will Receive a Payment — You may check your EIP status with the "Get My Payment" tool on IRS.gov. This tool is available in both English and Spanish.
  5. Receiving a Paper Check or Debit Card — Some individuals do not have direct deposit information on file with the IRS and will receive either a paper check or a debit card. You should watch your mail carefully. The Economic Impact Payment Card will be in a white envelope with the U.S. Department of the Treasury seal.
  6. One Spouse with Social Security Number — If only one spouse has a Social Security Number, that spouse and qualifying dependents will receive $1,400 dollars per person. An exception applies for active military individuals. If only the active military member has a valid Social Security Number, the couple will receive up to $2,800 in their stimulus payment.
In other news, IRS Commissioner Charles Rettig stated that individuals who have previously filed their 2020 tax return and received unemployment compensation will not need to file an amended return to receive a refund for taxes paid on up to $10,200 of unemployment compensation.

Rettig stated, "We hope to be able to announce that in the near future." He was referring to pending instructions to be issued by the IRS that would eliminate the need to file an amended return. Rettig was speaking to the House Ways and Means Oversight Subcommittee. He continued, "Whether they reported unemployment compensation or did not report it, do not file an amended return at this time."

The IRS plans to automatically issue refunds to individuals with gross incomes of less than $150,000 dollars who filed before passage of the American Rescue Plan Act. These taxpayers will not pay income tax on the first $10,200 of 2020 unemployment compensation.

Tax Day Extended to May 17


In IR–2021–59, the Treasury Department and Internal Revenue Service announced that the tax filing date for the 2020 tax year is changed from April 15, 2021 to Monday, May 17, 2021.

IRS Commissioner Chuck Rettig stated, "This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities. Even with the new deadline, we urge taxpayers to consider filing as soon as possible, especially those who are owed refunds. Filing electronically with direct deposit is the quickest way to get refunds and it can help some taxpayers more quickly receive any remaining stimulus payments they may be entitled to."

The delay also permits the postponement of federal income tax payments for the 2020 tax year until May 17, 2021. It does not delay the obligation to make estimated tax payments due on April 15, 2021.

Tax extensions this year will be from May 17 until October 15, 2021. They may be obtained by filing IRS Form 4868 through tax software or by using the Free File link on IRS.gov.

Rettig cautioned that the delay in the federal filing date may not apply to state income taxes. While some states have conformed their laws to the federal rules, others may continue to require filing and tax payments by April 15, 2021.

The extension was welcomed by House Ways and Means Committee Chairman Richard Neal (D–MA) and Representative Bill Pascrell, Jr. (D–NJ). Both Chairman Neal and Chairman Pascrell had been actively encouraging the IRS to delay tax-filing.

Neal and Pascrell issued a joint statement and noted, "Under titanic stress and strain, American taxpayers and tax preparers must have more time to file tax returns. And the IRS itself started the filing season late, continues to be behind schedule, and now must implement changes from the American Rescue Plan. We are gratified that the IRS has recognized the need and heeded our calls for additional time, and while we are pleased with this 30-day extension, we will continue to monitor developments during this hectic filing season."

The IRS action was welcomed by the 100 House lawmakers who had sent a letter to the IRS urging the extension. The Representatives stated, "With limited in-person tax assistance at local tax preparation clinics, libraries, and community centers, tens of millions of our constituents are facing the same logistical hurdles as last year. Additionally, the IRS is struggling to address taxpayer issues, with the agency reporting that it is answering only one out of four telephone calls." The 100 Representatives were pleased that the IRS responded by delaying tax filing to May 17, 2021.

Required Minimum Distributions in 2020 and 2021


In IR–2021–57, the Service explained 2020 and 2021 changes in required minimum distributions (RMDs) for qualified retirement plans. The RMDs have been affected by both the Coronavirus Aid, Relief and Economic Security (CARES) Act and the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

Under the SECURE Act, the age for RMDs changed from 70 to 72. Individuals who turned 70 before July 1, 2019 are subject to the age 70 rule, while those who are age 70 on or after that date must take their RMD at age 72. The RMD generally applies to 401(k), 403(b), 457(b), profit sharing and other defined contribution plans.

The CARES Act waived RMDs during 2020. Because the markets declined during the COVID-19 pandemic, Congress determined that it would waive the RMD for 2020. However, individuals who turned 70 before July 1, 2019 will be required to take an RMD in 2021.

The individuals who attain age 72 in 2021 must take an RMD by April 1, 2022 and a second RMD by December 31, 2022. If an individual desires not to have both RMDs taxable in a single year, the first withdrawal should be made by December 31, 2021.

If an individual is subject to the RMD rules and does not take an appropriate withdrawal, there is a 50% excise tax on the amount that is not distributed. There is a limited exception that permits a delay in receiving RMDs. Individuals who work the full year and are not 5% owners of the business sponsoring the retirement plan may delay receiving distributions until April 1 of the year after they retire.

Under the CARES Act, there was also favorable treatment for IRA withdrawals. The 10% additional tax on early distributions for individuals under age 59 is waived for coronavirus-related distributions from January 1, 2020 through December 30, 2020. The qualified distributions may be taxed over three years or may be repaid to the retirement plan within three years.

Some individuals received an RMD in the early months of 2020. They were given the option of returning the RMD and not paying tax. If they retained the 2020 RMD and it qualifies as a Coronavirus–related distribution, then the tax may be paid over a three-year period.

Applicable Federal Rate of 1.0% for April -- Rev. Rul. 2021-7; 2021-14 IRB 1 (15 March 2021)


The IRS has announced the Applicable Federal Rate (AFR) for April of 2021. The AFR under Section 7520 for the month of April is 1.0%. The rates for March of 0.8% or February of 0.6% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2021, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.



Published March 19, 2021
Print
Email
Subsribe to RSS Feed

Previous Articles

American Rescue Plan Act Benefits

Stress-Free Tax Filing Tips

30% Fewer Tax Returns By February 19

Flexible Spending Account Options for 2021

Avoid "Ghost" Tax Return Preparers

scriptsknown