Some of you may have already received your money from the second stimulus package that recently passed but it is important to note that the amounts and calculations are different this time around.
The Basics:
IRS began issuing payments via direct deposit on December 29, 2020.
Standard payment amounts are $600 for each qualifying U.S. citizen, resident alien, and dependent child under age 17, based on adjusted gross income (AGI) limits. (See chart below)
Payment amounts are reduced by $5 for every $100 above the determined income thresholds.
Confirmed direct deposit accounts will receive payments first, followed by mailed paper checks.
Please note: The IRS has not set up a procedure to change your direct deposit information through their website at this time, so if your direct deposit information has changed in the last year, you will likely need to wait for a paper check. Attempting to change your direct deposit information through the IRS website at this time may jeopardize your electronic filing for tax year 2020.
How much can you expect?
The graphic below shows the standard payments based on income limits.
Payments are reduced by $5 per $100 above the qualifying income thresholds, and will phase out completely at $87,000 AGI for individuals and $174,000 AGI for couples filing jointly.
We found an article on the Forbes Advisor website that provides an excellent comprehensive overview of the second round stimulus package, including a payment calculator and notable changes from the original CARES Act that was passed last spring. You can read the entire article here.
The IRS website also issued a press release regarding details of the second round stimulus, which can be found on their website here.
Just like taxes themselves, annual changes to the IRS tax code are a certainty. Luckily, the changes are mostly minor for 2021, but there are still a number of changes to provisions and limits that will affect millions of taxpayers.
For instance, now that most people take the standard deduction, slight increases for inflation are welcome news. According to the IRS, here are the new amounts for 2021:
Filing Status
Standard Deduction for 2021 Tax Year
Change from 2020
Single
$12,550
+$150
Married filing jointly
$25,100
+$300
Head of household
$18,800
+$150
Married filing separately
$12,550
+$150
Retirement Accounts
There are measurable tax benefits to putting money into retirement accounts, which is why IRS puts limits on just how much of that money you can deduct or contribute in any given year.
For the coming year, the actual allowable contribution amounts will stay the same, but there are changes in the income limit for some types of accounts. For example, both traditional and Roth IRAs have income thresholds , and allowable contributions and deductions gradually phase out as income increases and/or surpasses those limits. Again, the changes are minor for the coming year, but valuable to know. Here is the IRS chart outlining the income thresholds and phase-out limits:
Filing Status
Roth IRA Phase-Out Range
Traditional IRA Phase-Out Range if Worker Has Employer-Sponsored Retirement Account
Traditional IRA Phase-Out Range if Spouse Has Employer-Sponsored Retirement Account
Single
$125,000 to $140,000
$66,000 to $76,000
N/A
Married filing jointly
$198,000 to $208,000
$105,000 to $125,000
$198,000 to $208,000
Married filing separately
$0 to $10,000
$0 to $10,000
$0 to $10,000
2021 Tax Brackets
Tax brackets are changing slightly for the coming year also. It can be hard to say precisely what bracket you’ll end up in until you have figured out your AGI (Adjusted Gross Income) for next year, but we have provided the IRS tables below for singles, married filing jointly, and married filing separately to give you an idea of the adjusted ranges.
Brackets for Singles
Bracket for Singles
Tax is this amount + this percentage
Of the amount over
$0 to $9,950
$0 plus 10%
$0
$9,950 to $40,525
$995 plus 12%
$9,950
$40,525 to $86,375
$4,664 plus 22%
$40,525
$86,375 to $164,925
$14,751 plus 24%
$86,375
$164,925 to $209,425
$33,603 plus 32%
$164,925
$209,425 to $523,600
$47,843 plus 35%
$209,425
Above $523,600
$157,804.25 plus 37%
$523,600
Brackets for Married Filing Jointly
Bracket for married filing jointly
Tax is this amount + this percentage
Of the amount over
$0 to $19,900
$0 plus 10%
$0
$19,900 to $81,050
$1,990 plus 12%
$19,900
$81,050 to $172,750
$9,328 plus 22%
$81,050
$172,750 to $329,850
$29,502 plus 24%
$172,750
$329,850 to $418,850
$67,206 plus 32%
$329,850
$418,850 to $628,300
$95,686 plus 35%
$418,850
Above $628,300
$168,993.50 plus 37%
$628,300
Brackets for Married Filing Separately
Bracket for married filing separately
Tax is this amount + this percentage
Of the amount over
$0 to $9,950
$0 plus 10%
$0
$9,950 to $40,525
$995 plus 12%
$9,950
$40,525 to $86,375
$4,664 plus 22%
$40,525
$86,375 to $164,925
$14,751 plus 24%
$86,375
$164,925 to $209,425
$33,603 plus 32%
$164,925
$209,425 to $314,150
$47,843 plus 35%
$209,425
Above $314,150
$84,496.75 plus 37%
$314,150
There are a number of other changes to various tax provisions for 2021 that may affect your situation. These include capital gains and estate taxes.
We have found a comprehensive overview of the 2021 changes on The Motley Fool websitehere. It’s definitely worth a look as you start thinking about tax planning for the New Year!
Feeling charitable this holiday season? According to a reminder issued just before Thanksgiving, it appears the IRS is, too. Lucky for a lot of generous people this year, one of the components of the CARES Act you may no be aware of is a provision that allows for an “above the line” cash deduction for some charitable contributions.
It’s not life-changing money, but for people who could use some incentive to support their favorite charity this year, the IRS is making an allowance for cash donations up to $300—even if you claim the standard deduction rather than itemizing.
The standard rules apply, of course. For instance, it must be a legitimately recognized charitable organization, and you’ll need to to provide proof of your contribution if asked. So as long as you keep your receipts handy, your generosity during this particularly difficult year can be rewarded.
You can read the IRS press release and access additional resource links on their website here.
For everyone who has ever said “I would never fall for that,” there are numerous stories of people who lost money, time and credit ratings to cyber criminals. We all want to believe that the holiday season is a time that brings out the best in people. Thankfully, that’s true in most cases. Still, there are astonishing numbers of scammers who continue to find ways to trick people out of their hard-earned money, often without you knowing until it’s too late. And worse, the incidence of “ransomware” attacks—where foreign scammers literally kidnap sensitive information from companies online until they pay—are increasing.
That’s why it’s so important to pay attention to recommendations for keeping your information secure and not becoming an easy target for identity theft.
As part of the 5th Annual National Tax Security Awareness Week, the IRS has issued new warnings, noting that a combination of factors have presented more opportunities than usual for scammers to gain access to your personal information this year. For instance, more people working from home, increased online shopping, and the backlog of unemployment claims.Whether you are using a desktop computer, a laptop, or your smartphone(!) there are a number of basic steps we can all take to help protect ourselves from identity theft and cyber scams.
The list below from the IRS outlines a number of things you should do:
Don’t forget to use security software for computers and mobile phones – and keep it updated.
Make sure purchased anti-virus software has a feature to stop malware, and there is a firewall that can prevent intrusions.
Phishing scams – like imposter emails, calls and texts – are the No. 1 way thieves steal personal data. Don’t open links or attachments on suspicious emails. This year, fraud scams related to COVID-19 and the Economic Impact Payment are common.
Use strong and unique passwords for online accounts. Use a phrase or series of words that can be easily remembered or use a password manager.
Use multi-factor authentication whenever possible. Many email providers and social media sites offer this feature. It helps prevents thieves from easily hacking accounts.
Shop at sites where the web address begins with “https” – the “s” is for secure communications over the computer network. Also, look for the “padlock” icon in the browser window.
Don’t shop on unsecured public Wi-Fi in places like a mall. Remember, thieves can eavesdrop.
At home, secure home Wi-Fis with a password. With more homes connected to the web, secured systems become more important, from wireless printers, wireless door locks to wireless thermometers. These can be access points for identity thieves.
Back up files on computers and mobile phones. A cloud service or an external hard drive can be used to copy information from computers or phones – providing an important place to recover financial or tax data.
Working from home? Consider creating a virtual private network (VPN) to securely connect to your workplace.
You can find additional information and resource links on the IRS website here.
The Centers for Medicare & Medicaid Services (CMS) posted a “Fact Sheet” in November detailing the changes we can expect in the New Year. As anticipated, Medicare premiums are going up next year. Unfortunately if you pay Part B premiums through Social Security and experienced a significant drop in income this year, you might be surprised by an increase in 2021. This is because the calculations for 2021 are actually based on your income from last year (2019) rather than your 2020 income.
In general, most people’s income tends to increase from one year to the next. COVID-19 reversed that trend for millions of people this year, and for those collecting Social Security, it may work against you in 2021.
For example:
Mary is single.
She made $103K in 2019, but only $62K in 2020.
The first-tier threshold for a single filer to see an increase in 2021 is $88,000.
Even though Mary was well below the threshold in 2020, her premiums will go up in 2021 because she was above it in 2019.
The chart below shows how to calculate the upcoming premium increases for Part B taxpayers.
Beneficiaries who file individual tax returns with income:
Beneficiaries who filejoint tax returns with income:
Income-related monthly adjustment amount
Total monthly premium amount
Less than or equal to $88,000
Less than or equal to $176,000
$0.00
$148.50
Greater than $88,000 and less than or equal to $111,000
Greater than $176,000 and less than or equal to $222,000
59.40
207.90
Greater than $111,000 and less than or equal to $138,000
Greater than $222,000 and less than or equal to $276,000
148.50
297.00
Greater than $138,000 and less than or equal to $165,000
Greater than $276,000 and less than or equal to $330,000
237.60
386.10
Greater than $165,000 and less than $500,000
Greater than $330,000 and less than $750,000
326.70
475.20
Greater than or equal to $500,000
Greater than or equal to $750,000
356.40
504.90
According to CMS, the income-related monthly adjustments will affect roughly 7% of taxpayers with Medicare Part B. And while 7% may not sound like a lot, it is still a significant number of people,amny of whom are still trying to recover from this year’s loss of income.
If you are interested in learning more, you can access the CMS Fact Sheet on their official site here.
Any rate lower than what you are currently paying can save significant interest over time.
Refinancing can lower your monthly payment and/or reduce the years left on the loan as well!
We are always looking for ways to help you save money and plan for a comfortable retirement, and depending on the terms of your current mortgage, taking advantage of historically low interest rates can be a great way to reduce your long-term debt.
Whenever interest rates are low, there is an opportunity for homeowners to save money which can add up to tens or even hundreds of thousands of dollars over the life of your loan. Getting the information you need to decide is easy these days. Typically, all you’ll need to do is send a copy of your current mortgage statement via text or e-mail, and you’ll get back a number of different terms and rates to consider.
If you are interested in finding out the refinancing options that are available to you, I’d like to recommend Rob Matthews at PrimeRate Mortgage. I have known Rob for more than 20 years, and he has consulted for and handled mortgage loans for many mutual clients. Even if you currently have a good rate, it might be worth your time to contact Rob to see if you could save some money by refinancing.
As a reminder, in the interest of data privacy and security, we will be removing all files from the portal on Monday, December 7, 2020. As with any personal information, you should maintain and store your financial and tax records in a secure and accessible location, whether digitally, in hard copy, or both. If you wish to retrieve any of the information that is currently in your folder(s) on the client portal, you will need to download it to your home computer before Monday, December 7th.
As we mentioned in our previous newsletter, the company that hosts our client portal made some software updates that affected our login link. We corrected the link on our website, but if you try to login through a bookmark that was created before the update you will land on the following site error message:
The resource cannot be found.
Description: HTTP 404. The resource you are looking for (or one of its dependencies) could have been removed, had its name changed, or is temporarily unavailable. Please review the following URL and make sure that it is spelled correctly.
Requested URL: /portal/login.aspx
To correct this you just need to delete any information that appears after “.com” in the website address and re-save the bookmark. For example:
This reminder is for everyone—especially joint filers who ended up owing money in recent years—to make sure your withholding choices don’t leave you with another big tax bill in years to come. Strange as it may sound, for working couples filing jointly who make more than $150,000 year, it might make sense to change one (or both!) of your W-4s to Single status with 0 dependents. The basis is simple: The more money that is withheld in taxes throughout the year, the more likely you are to get a refund, rather than owe, when it’s time to file.
If you’re like most people, you filled out a W-4 form when you started working. It was part of the paperwork, like your I-9 and health insurance forms, and you haven’t thought about it since. In fact, it’s not unusual to think that making changes to your W-4 is only possible—or necessary—in two circumstances:
When you are newly hired or are changing jobs; or
When you have a life event, such as the birth or adoption of a child, a divorce, or the death of a spouse.
But the truth is that you can make changes to your W-4 at any time. And there is often good reason to do so. For instance:
You and your spouse’s combined incomes put you over an income threshold that affects your tax burden.
You have a second or part-time job, but your W-4 withholdings don’t take this into account.
You are making more money and your tax bracket has changed.
Changes to tax laws unexpectedly put you in a higher tax category.
This last one is what many of our clients experienced as a result of the Tax Cuts and Jobs Act that was passed in 2017. And that is why we suggest checking that your withholding makes sense for your current situation.
Though it’s too early to speculate on what changes we are likely to see at the beginning of the new year, we’re still encouraging everyone who has owed money the last two years to consider contacting your employer to change your W-4 allowances and/or status before your first paycheck of 2021.
