Last week, President Biden signed the most recent government stimulus bill, the American Rescue Plan Act of 2021. This $1.9 trillion stimulus package was passed with hopes of speeding up an economic recovery due to the Pandemic. Two key elements of the bill focused on addressing unemployment benefits and issuing a third stimulus payment for qualifying taxpayers.
With federally assisted unemployment benefits set to expire the week of March 14, this bill extends the subsidized program until the week of September 6. People collecting state unemployment benefits and Pandemic Unemployment Assistance (PUA) will continue to receive the additional federal unemployment assistance of $300 per week in addition to the state unemployment benefit for an additional six months.
Furthermore, for the 2020 tax year, taxpayers can exclude their first $10,200 of unemployment benefits received in 2020 from their taxable income on their tax return. To qualify, the taxpayer’s modified adjusted income on the tax return must be less than $150,000. For joint filers, each spouse will separately qualify for the $10,200 exclusion. As of now, this exclusion is for tax year 2020 only. This exclusion is only for federal taxes and each state will need to determine if they will allow the exemption as well. For taxpayers that have already filed their 2020 tax return and qualify for this exclusion, an amended tax return can be filed to claim the benefit.
A third round of stimulus checks is also part of the package. Beginning the weekend of March 13, the government began sending out stimulus checks in the amount of $1,400 per person. This special payment is not income but is an advance payment of the 2021 Recovery Rebate Tax Credit to be included on taxpayers’ 2021 federal tax returns. The prior two stimulus checks excluded dependents over the age of 16. Stimulus checks being sent under this bill include all dependents listed on a taxpayer’s tax return – children over the age of 16 as well as parents and others that qualify as dependents for a taxpayer.
Phase out of the checks are based upon filing status and income levels:
- For a single filer the income phase-out range is between $75,000 – $80,000
- For a joint filer the income phase-out range is between $150,000 – $160,000
- For a head of household filer the income phase-out range is between $112,500 – $120,000
The income threshold for taxpayers will be based upon the 2020 tax return, if already filed. If the 2020 tax return has not been filed yet then then the threshold will be based upon the taxpayer’s 2019 tax return. If your income is above the phase-out range in 2020 but below the range as reported on your 2019 tax return, then you should consider delaying your 2020 tax return filing until your stimulus check is received.
If the IRS has a taxpayer’s bank info from a prior tax return, the payment will be via direct deposit. Otherwise, a check or debit card will be sent to the recipients. Taxpayers can check the status of their stimulus payment by going to the following IRS link: Get My Payment | Internal Revenue Service (irs.gov)
Another recent development gives people until 8/31/20 to repay any Required Minimum Distributions taken so far in 2020, including RMDs from inherited IRAs.?According to the IRS at:
IR-2020-127, June 23, 2020
WASHINGTON ? The Internal Revenue Service today announced that anyone who already took a required minimum distribution (RMD) in 2020 from certain retirement accounts now has the opportunity to roll those funds back into a retirement account following the CARES Act RMD waiver for 2020.
The 60-day rollover period for any RMDs already taken this year has been extended to August 31, 2020, to give taxpayers time to take advantage of this opportunity.
The IRS described this change in?Notice 2020-51 (PDF), released today. The Notice also answers questions regarding the waiver of RMDs for 2020 under the Coronavirus Aid, Relief, and Economic Security Act, known as the CARES Act.
The CARES Act enabled any taxpayer with an RMD due in 2020 from a defined-contribution retirement plan, including a 401(k) or 403(b) plan, or an IRA, to skip those RMDs this year. This includes anyone who turned age 70 1/2 in 2019 and would have had to take the first RMD by April 1, 2020. This waiver does not apply to defined-benefit plans.
In addition to the rollover opportunity, an IRA owner or beneficiary who has already received a distribution from an IRA of an amount that would have been an RMD in 2020 can repay the distribution to the IRA by August 31, 2020. The notice provides that this repayment is not subject to the one rollover per 12-month period limitation and the restriction on rollovers for inherited IRAs.
File Something on or Before 7/15
If you can’t get your tax returns completed by July 15th, make sure to file for an automatic extension.? Filing something on July 15th is the only way to avoid the Failure to File Penalty equal to five percent per month on any 2019 federal income taxes due as of 7/15/20.? Yes, expect the IRS to charge you $50 per month on every $1,000 of taxes owed as of 7/15 if you don’t file your tax return or extension request by that date.
Filing for an extension is easy.? Simply go online to https://www.irs.gov/payments and make an online payment or submit a Form 4868 to the IRS along with a check made out to the United States Treasury for an estimate of the taxes you might owe, if anything.? Even if you’re confident you’ll be getting a refund, it’s still a smart idea to file for an automatic extension.
By submitting an extension request (Form 4868) prior to the tax return due date, the Failure to File penalty of five percent per month is replaced with a much more reasonable Failure to Pay penalty of one-half percent per month.? That’s a pretty good return on your $.55 investment for the stamp used to mail the one-page automatic extension request, Form 4868, to the IRS.
Plus, if you end up owing the IRS no more than the greater of 10% of your total federal tax liability or $1,000, you should not be assessed any penalties at all, as long as you file your federal tax return by October 15th.? In this case, you’ll only owe interest to the IRS at today?s very low rate on your balance due as of 7/15/20.
And While You’re At It, Fund Your IRAs
When it comes to your IRAs this year, the deadline to put away money for 2019 is July 15, 2020, even if you file an extension.? This deadline applies for traditional IRAs and Roth IRAs.
For 2019, you can contribute up to $6,000 into an IRA.? Anyone 50 or older as of December 31, 2019 can put away an extra $1,000.? If you’re married, both spouses can contribute to an IRA provided one spouse has earned income during the year in excess of the total combined amount to be contributed.
One great reason to contribute to a traditional IRA each year is to take advantage of the rule allowing all taxpayers to convert their IRAs to a Roth IRA regardless of their income.? Remember, there is a relatively modest income limitation for Roth contributions.? If your 2019 AGI exceeds $137k if single or $203k if married, you aren’t allowed to contribute any money directly into a Roth IRA. However, there is no income limit for people who first contribute to a traditional IRA and then convert that money to a Roth IRA. This strategy is commonly called the Backdoor Roth.
Fund Your HSAs By 7/15 Too:
Health Savings Accounts are the only investment vehicle we?re aware of that offers the winning combination of tax-deductible contributions and tax-free distributions. Individuals with a qualifying high-deductible health insurance plan in place during 2019 were eligible to contribute up to $3,500 into an HSA account for individual plans or $7,000 for family plans.? Anyone 55 or older by 12/31/19 could add an additional $1,000 to their HSAs.
HSAs are funded by your employer, through payroll withholdings at work, or by personally contributing directly into your account.? You have until 7/15/20 to top off your HSA for 2019 if you haven?t already done so, even if you file for an extension.
For more info on HSAs, please check out our recorded webinar available at: https://www.youtube.com/watch?v=prYRhsR9JT0&feature=youtu.be.?? ??????
Buy Three Months to Fund Your Self-Employed Retirement Account
Are you self-employed?? If so, filing an extension might make a lot of sense since it buys you an additional three months to establish and fund your SEP IRA for 2020.? It’s not uncommon for self-employed individuals to pay all of their taxes due with an extension, and then fund their SEP IRA, SIMPLE IRA, or Solo 401k, as well as submit their tax forms, by October 15th.
The deadline to file and pay your 2019 federal income taxes has been extended to 7/15/20. Same deadline applies for Q1 and Q2 estimates for your 2020 federal taxes as well as for most states.? However, some states including ME, NH, NY and RI appear to have pushed their estimated tax deadline back to only 6/15, so please pay those states? estimates soon if your haven?t already done so. You can locate your estimated taxes in your Client Portal if we have already finalized your 2019 tax returns.
Included in the recently passed CARES Act is Pandemic Unemployment Assistance (PUA) which provides additional unemployment insurance benefits to those who normally would not qualify to receive unemployment benefits.? Recipients of PUA include self-employed individuals such as single-member LLC?s, sole proprietors, and independent contractors.
Self-employed individuals who are not working due to COVID-19 are eligible to collect unemployment benefits retroactive to the later date of February 2, 2020 or the first week the claimant was not working due to COVID-19 circumstances.? Individuals can collect benefits until the week ending December 26, 2020.
Additionally, self-employed individuals collecting PUA will also be eligible to collect Federal Pandemic Unemployment Compensation (FPUC).? The FPUC program provides individuals collecting unemployment benefits an additional $600 benefit payment per week.? Thus, individuals receiving PUA benefits who are determined eligible for FPUC will receive an additional $600 benefit payment for the weeks ending April 4, 2020 to July 25, 2020.
To apply for PUA, you will need to go to your state website.? The link to apply for PUA assistance for MA, and NY are below:
The Families First Act took effect April 1 and does cover household employers.
However, the Department of Labor has the discretion to exempt businesses with under 50 employees if the business can demonstrate that the new requirements would jeopardize its viability.
Two parts of the Families First Act impact household employers:
- the paid sick leave and paid family leave for employees that are affected by COVID-19; and
- the refundable payroll tax credits designed to reimburse employers dollar for dollar for the cost of providing Coronavirus-related leave.
This could result in thousands of dollars in tax credits.
We’ve answered common questions below to help you navigate this new Act.
How much paid sick time may my caregiver receive?
Your nanny or caregiver is eligible to take up to 80 hours of paid sick time if they work full-time for you. If your household employee works part-time, their paid sick time will be the average weekly hours they typically work in a two-week period. Sick time is available to be taken immediately, regardless of how long your employee has worked for you, but it will not roll over to 2021 if it is not used.
How much expanded FMLA (paid family leave) can my caregiver receive?
If your caregiver needs to take paid family leave to care for their children because their school or daycare is closed, they are eligible to take a total of 12 weeks, but the first two weeks can be?unpaid?time off. The remaining 10 weeks would need to be paid if your employee needs them.
?If my employee has another job and just works with us periodically, am I required to provide paid sick time/paid leave benefits?
Yes, the Families First Act does provide part-time employees with paid sick time and expanded FMLA (paid sick leave) benefits. However, the amount of benefits are calculated based on the average number of weekly hours your employee works in a two week period so you?ll need to do these calculations to determine your requirements.
When would it be appropriate for my nanny or caregiver to use their paid sick time?
Your caregiver may use their paid sick time for any of the following reasons:
- They are subject to a federal, state or local quarantine order related to the coronavirus.
- They are experiencing COVID-19 symptoms and need to be diagnosed by a medical official.
- They have been advised by a health care provider to self-quarantine because of the coronavirus.
- They are caring for a family member who has symptoms of the coronavirus or has to self-isolate due to a doctor?s order.
- They have to care for their child because their school or daycare has closed due to the coronavirus, or if their personal child care provider is not available.
When would it be appropriate for my employee to use expanded FMLA (paid family leave)?
Your employee is eligible to use paid family leave if they cannot work due to their child?s school or daycare being closed ? or if their normal caregiver cannot take care of their children. Unlike paid sick time, expanded FMLA is not tied to your employee?s child being ill.
I already offer paid sick time and paid time off to my caregiver in their contract. Would I need to provide this additional leave?
Yes, if your household employee meets the qualifications we just listed, they would be given this new mandated paid sick time and expanded FMLA benefit in addition to what you already offer. Additionally, your caregiver would have to use the newly mandated paid sick time hours before any other paid sick time you offer can kick in. However, your employee may use paid vacation days or other paid time off that you offer during the two weeks where family leave is unpaid.
How much would I have to pay my caregiver if they cannot work?
This will depend on the type of leave your employee needs to use.
- If your nanny or caregiver goes to the doctor to be diagnosed for COVID-19, be treated for the illness or must miss work due to contracting COVID-19, they would earn?paid sick time?at their normal hourly rate, up to $511 per day.
- If your caregiver has to miss work to care for a family member with COVID-19 or care for their child because their school or daycare is closed due to the coronavirus, they would also earn?paid sick leave,?but only at 2/3rds of their normal hourly rate, up to $200 per day. You would be welcome to pay your caregiver their full hourly rate, but the additional amount would not apply to a tax credit that we will outline later.
- If your employee is unable to work because they have to care for a child under the age of 18 whose school or place of care has been closed, they may earn?expanded FMLA?(paid family leave)?benefits?at 2/3rds of their normal hourly rate, up to $200 per day. Again, you would be free to pay your employee their full hourly rate instead, but this additional amount will not count toward a tax credit.
Would the Families First Act give me a tax credit for this additional required paid time off?
Yes, employers not exempt from this law will be entitled to a tax credit equal to the sick leave and/or expanded FMLA wages paid to your employee while they are out of work.
- If your nanny or caregiver had to self-isolate because of the coronavirus, 100% of the sick time you paid to them will be refunded to you, up to $511 per day for up to 10 days. This applies for each employee you have.
- If your nanny or caregiver used sick time to care for a family member or child, they?ll receive 2/3rds of their regular wages and your credit will be capped at $200 per day for up to 10 days. Again, this applies for each employee you have.
- If your nanny or caregiver had to take expanded FMLA (paid family leave), they are paid 2/3rds of their hourly rate and your credit will be capped at $200 per day and $10,000 total.
The credit is refundable to families, which means if you paid more money for sick time and/or expanded FMLA benefits than you owed in Social Security and Medicare taxes, you would be refunded the difference.
What if I had to temporarily lay my employee off due to COVID-19 concerns?
Under the Families First Act, your nanny or caregiver may be able to file for unemployment benefits if they have their hours reduced or are let go because of the effects of the coronavirus. Your state?s department of labor (or agency that handles unemployment claims) would make the determination of whether your caregiver could receive financial assistance while they are out of work.
?If my employee does not qualify as an essential worker and cannot come to work, am I required to continue paying them?
No, you are not required to continue paying your employee, but you are welcome to do so. If you do not continue to pay your employee, they should qualify for unemployment benefits from the state while they are out of work.
If my employee qualifies as an essential worker, do I have to pay them if they still elect to stay home? If so, what are rules for doing this?
If your employee is able to work, but chooses not to do so, you?re not required to pay them. You are only required to pay out paid sick leave and/or expanded FMLA benefits if your employee is able to work, but physically cannot do so because they are sick, caring for a family member that is sick, or caring for their child because their school or daycare is closed due to COVID-19.
Child care workers are considered to be essential workers and are allowed to work in a family?s home. See the?state of Massachusetts? website?for more information.
In-home child care is considered an essential service, so caregivers can continue working in a family?s home. Visit the?state of New York?s website?for more information.
I need to cut my full-time nanny’s hours back to part-time during this crisis? Can they qualify for unemployment benefits?
This varies by state, but generally speaking, your employee can qualify for benefits if their hours are reduced by 40-60%.
If I reduced my employee?s hours, can they receive partial unemployment benefits AND paid leave benefits because they have to miss additional days to care for their own kids?
Generally, employees cannot receive unemployment benefits if they are already receiving benefits from their employer.
Can I let my employee go if they choose not to work for my family due to health concerns?
Yes, you can let your employee go if they are unwilling to work for your family due to concerns about the coronavirus. You?re welcome to re-hire them at a later date if you choose to do so.
I just hired my caregiver in January and need to furlough them. Will they qualify for benefits?
This decision will vary by state. Your employee can file for unemployment benefits and the state will make a determination based on the standards they have.
How does the CARES Act impact me and my caregiver?
Expanded unemployment insurance benefits
According to the CARES Act, if your employee has to be let go from their job due to COVID-19 concerns, they may qualify for expanded unemployment benefits through the state. Specifically, the CARES Act allows employees to collect $600 per week, on top of the financial assistance the state provides, for up to four months.
Additionally, the CARES Act extends the maximum amount of time your nanny or caregiver can receive unemployment benefits by 13 weeks. The current maximum varies by state, but most states already allow for approximately 26 weeks of unemployment benefits, which will now increase to approximately 39 weeks. If your nanny or caregiver is being paid on the books, they should be able to access these benefits if they need them.
Stimulus payments for individuals
To help workers make ends meet, the CARES Act also provides a one-time payment of up to $1,200 ($2,400 for married couples filing jointly), plus an additional $500 for each child. You may have heard this referred to as a ?stimulus check? or an ?economic impact payment.? There are a few qualifications your nanny or caregiver must meet to receive this payment:
- Your employee must earn less than $99,000 annually in adjusted gross income ($198,000 if married).
- For every $100 above $75,000 ($150,00 if married) your employee earns, their payment will be reduced from $1,200 in $5 increments. This is the reason for the $99,000 earnings cap.
- Your employee must have a Social Security number.
- Your nanny or caregiver must have filed a 2018 or 2019 income tax return so the IRS knows what their adjusted gross income is.