What is Recovery Rebate Tax Credit for 2020 all about?

What is Recovery Rebate Tax Credit for 2020 all about? The pandemic COVID-19 had created a huge adverse impact on the financial lives of the Americans. Initially, the US Government had issued a huge round of Stimulus Checks or Economic Impact Payments up to $ 1200 for each qualified adult in a household plus $500 for each qualifying dependent. Later on, another round of Stimulus Payments has been issued for the Americans according to which each qualified individual in a household would receive Stimulus Payment of up to $600. The eligibility of Americans to receive these Economic Impact Payments is based mainly on their AGI. The IRS would mainly have a look at the tax returns of the Americans for the year 2018 or 2019 for determining their eligibility to receive the Stimulus Payments. Under the CARES (Coronavirus Aid, Relief and Economic Security) Act, a different type of credit known as “Recovery Rebate Tax Credit” has been authorized. This implies that if an American is eligible to receive the Stimulus Payment or the Economic Impact Payment, but has not received the payment or has received an amount which is less than the total amount in the form of an advance payment for the tax year 2020 then it would be feasible to claim Recovery Rebate Tax Credit on the tax returns of 2020. Who would qualify for a Recovery Rebate Credit? In general, an individual would be eligible to obtain Recovery Rebate Credit if
  1. The individual was a US citizen or a resident alien of the US in the year 2020.
  2. The individual was not claimed as a dependent in the year 2020
  3. The individual has a valid Social Security Number issued for employment before the due date associated with the 2020 tax returns.
The amount of Rebate Recovery Credit to be obtained can be calculated by the IRS in the same method which was used to calculate the Stimulus payment.
  • Any eligible taxpayer who has not received either one or both of his Stimulus payments would be able to claim the Recovery Rebate Credit while filing their tax returns for 2020 in 2021. 
  • There might be some individuals who would have experienced a life-changing event after the first round of Economic Impact Payment was made such as unemployment or birth of a child etc.
  • If an individual is single and has an adjusted gross income of less than $75000 and his Stimulus obtained is less than $1200.
  • If an individual is married and is filing his tax returns jointly with a gross income, not more than $15, 00, 00 and his Stimulus payment is less than $2400 then he can claim Recovery Rebate Credit.
  • If an American has not received $500 for every qualifying energy then he can claim the Recovery Rebate Credit.
Information required claiming Recovery Rebate Credit In case, you have not received the full Economic Impact Payment and wish to claim more by the Recovery Rebate Credit on the taxes of 2020 then you would have to inform about the amount of Stimulus payment that was issued in the tax year 2020. A Notice 1444 is being issued by the IRS which reflects the amount that an individual was issued before any offences had happened in 2020. While filing your tax returns, an individual can have this form in front of him and do his taxes. Can a college-going student claim the Recovery Rebate Credit? If an individual is able to meet the basic eligibility criteria and has not been claimed as a dependent on his parents or anyone else’s tax returns of 2020, then he can claim the Recovery Rebate credit if he has not received the Stimulus Payment. If a college student has worked in 2020 and has federal taxes withheld from his pay, then he can get some of his withholding back either as a tax refund, claim the education tax benefits also increase their refund by the help of Recovery rebate credit. Recovery Rebate Credit – Way to claim the additional stimulus If you have not been able to claim the extra $500 for each qualifying child in your first Stimulus Check or have not been able to claim the additional $600 for each qualifying child in the second Stimulus Check then the additional amount can be claimed by the Recovery Rebate Credit. Conclusion Hence, in these challenging times of Coronavirus, the Recovery Rebate Credit would be a helpful means in increasing the amount of tax refund to be obtained by an individual or in decreasing the tax owed by an individual. Recovery Rebate Credit can be claimed on Form 1040 or Form 1040-SR in the year 2020.

The erstwhile Tax Mistakes to avoid in 2021

The erstwhile Tax Mistakes to avoid in 2021

The tax laws in the US are quite complicated but the taxpayers make quite simple mistakes while filing their tax returns. 

Let us have a look at the most common tax mistakes which are made by the US taxpayers and can be avoided during this tax year.

  • Not filing tax returns on time

According to the estimates made by the IRS, 20% of the US taxpayers would wait till the last date for filing their tax returns.  However, waiting till this last minute can cause them to miss the deadline.  Even if the taxpayers are filing a request for an extension in the deadline to file the tax returns there would be the need to pay any tax that is owed by the actual deadline. In case, the tax payments are not made by the due date then the taxpayer would be charged interest by the IRS.

  • Incorrectinformation

This is one of the most common mistakes made by the taxpayers while filing their tax returns. Some of them either leave some boxes blank or some make a typo error while filling important details like Social Security Number.

One of the easiest methods by which you can avoid this is by importing the tax return which has been filed in the previous tax year. By this, you can avoid any typo error associated with manual entry of the filing information.

 Not aware of the latest tax laws

The US tax laws are not only complicated but are subject to minor changes every year. It is imperative for the taxpayers to know in detail about the changes that have been made into the tax laws so that they do not miss the details on the tax deductions and credit.

  • Filing status errors

The filing status of a taxpayer would determine the tax rate of a taxpayer and his eligibility to avail the tax deductions. If a wrong filing status is being chosen by a taxpayer then he would have to either underpay or overpay the taxes which would have its own implications on the cost. For instance, married couples who are filing tax returns jointly have different rules than those who are filing their returns separately.

 Making wrong choices about itemizing

While filing your tax returns, you can either choose between itemizing or claim a Standard deduction. If you are itemizing then you would not be able to claim Standard Deductions. Out of the two, you can choose either one out of the two choices. 

There are certain deductions which you can claim easily without the need for any itemizing. These deductions can be making contributions into the IRA or the deduction related to the Student loan interest. However, some deductions can only be claimed if itemized which gives up the right for claiming the Standard Deduction. 

  • Not getting any help while tax filing

Tax filing is complicated and should not be done on your own. You can take the help of various software programs which are designed with the aim of making tax filing easier and simpler. You can answer a series of simple questions which would help you in identifying your deductions and credits and thus, simplifying your process of filing the returns.

Moreover, taxpayers can also take assistance from tax professionals then it would be a great option to avoid any mistakes while tax filing.

  • No copy of the return

Usually, the tax experts and professionals would advise on keeping a copy of the tax return filed for a period of at least two years. That’s a general time period for which the IRS would be able to legally audit the taxpayers for the gross under-reporting of their income. 

  • Not reporting all income

If taxpayers are not reporting all of their income, then the probabilities are quite high that the IRS would know about them. As the IRS receives forms like Form W-2s and Form 1099S for the entire income you earn, it is quite easier for the IRS to know even if you are not reporting. 

The IRS can carry criminal prosecutions for any wrong or non-reporting of income by the taxpayers. Taxpayers can be penalized for the non-reporting of all income and it is always advisable to report the correct income to the IRS.

Conclusion

So, now since the taxpayers have an idea about the erstwhile tax mistakes it is wiser to be careful, avoid these mistakes and rule out the possibilities of being penalized.

Tax Deductions Available for Cancer patients

Tax Deductions Available for Cancer patients A life-threatening disease like cancer can lead to a lot of mental unrest along with a lot of financial responsibilities. If you have a health insurance plan, then it would be helpful in providing cover for some amount of the medical expenses incurred. If you are undergoing any cancer related medical treatment then your health insurance would help in providing cover for the bills incurred. But, in the medical treatment related to these life-threatening diseases there would be some additional expenses which have to be paid by you. Also, cancer patients can avail the benefit of tax breaks on their taxes by the help of their out-of-pocket expenses. Eligibility for tax deductions which are cancer-related If you are able to itemize your tax deductions instead of making claim for Standard Deduction, then you can easily deduct those medical expenses which are related to regular care, medication, diagnosis, hospital stays, etc. if the expenses that have been incurred are more than 7.5% of the Adjusted Gross Income (AGI). Medical-related travels can also be claimed as deduction such as the mileage related to driving to the appointment at the rate of 20 cents per mile as well as travel-related to any seminars. Those taxpayers who are self-employed do not need to itemize their tax deductions for deduction of their health insurance premium. Self-employed taxpayers are eligible to deduct their health insurance premium as a deduction to their income. What would be done? Medical expenses that can be deductible are defined according to the IRS code as those costs which are related to the diagnosis, treatment or mitigation of diseases and are mainly for the purpose of affecting any major body part or function.  Various treatments related to cancer such as the chemotherapy and radiation surgery are too expensive and the arrangement of your health insurance plans will have a major impact on the coverage of these expenses. There are several categories of cancer and in case of any rare type of cancers such as mesothelioma which would need specialized care; travel is an important part of the treatment procedure. The cost involved in the travel during cancer treatment medical procedures might be tax-deductible. There is a comprehensive list of costs which would qualify for a tax deduction and this list would include health insurance premiums which are not paid in pre-tax dollars. You might pay for the medical care you have received by your credit card, cash or personal checks during the period of the tax year in which the tax deduction was being considered. During the time of tax return filing, itemized tax deductions such as the expenses related to medical bills, mortgage interest, State and Property taxes and charitable contributions will exceed the increased Standard Deduction that has been permissible by the IRS. The permissible Standard Deduction for the US citizens is $12,000 for those who are filing using Single status and is $24,000 for those citizens who are married and are filing their returns jointly. In case of your tax deductions being itemized, the medical costs incurred should be more than 7.5% of your Adjusted Gross Income (AGI) for the year 2019. Also, this figure was different for the tax year 2018 in which someone who has an AGI of $50,000 would deduct the expenses which are out-of-pocket if they are more than $3750. Conclusion Hence, in case of any life-threatening diseases such as cancer tax deductions and claiming of credits is feasible but you must be well-aware about the tax rules and regulations.

New to the US – Here’s what you need to know about filing your taxes as an NRI in the US

New to the US – Here’s what you need to know about filing your taxes as an NRI in the US If you are a US resident or a US citizen i.e. an NRI, PIO or OCI you must have to pay taxes to the US Government on the global income which you have earned.  A person would be defined as a US resident only if he is able to meet either of the below-mentioned tests.
  • Green Card Test
If during any period of a particular calendar year, according to the laws of immigration you were a permanent resident of the United States and this status has not been abandoned by the law then you would be considered to have passed the Green Card Test.
  • Substantial Presence Test 
The Substantial Presence Test states that you should have been present in the United States physically for a period of at least 31 days during a particular year and 183 days during the three year period which would include the current tax year and the 2 years immediately before the current year.   If you have a green card, then you would be considered to be a US resident for the purpose of tax irrespective of the place where you are living. In case, you are a Visa holder then there are more complicated rules associated with the Universal Taxing Jurisdiction. If a taxpayer is having income or receiving a salary from India, then that has to be reported by filing Form 1040. Also, the taxpayer would fill up form1116 if he is claiming the tax credit. By the Double Tax Avoidance Agreements (DTAA) NRIs would be eligible to receive credits for the tax that has been paid in India. This would help in providing protection from paying taxes in both nations.   FBAR Information The FBAR Form can be considered as a reporting form for those US citizens who hold $10,000 or even more in a foreign financial account. Moreover, it is necessary for you to include the instruments like mutual funds, life insurance plans, accounts where you are considered as the signatory authority only.  FATCA Reporting – Form 8938 Certain taxpayers from the US who are holding some specific foreign financial assets with an aggregate value that exceeds $50,000 must report information about the assets on the Form 8938. This form must be attached to the annual income tax return of the taxpayers. Those US taxpayers who are residing abroad or who file a joint tax return can have the privilege of a higher asset threshold. Foreign Tax Credits Foreign Tax Credit is a non-refundable tax credit for the income tax which has been paid to the foreign Government due to the foreign income tax withholdings. This credit is mainly available for a taxpayer if he has either worked in a foreign nation or has some income from investments into foreign sources. There are some qualifying factors which would help in understanding if a taxpayer would be eligible to obtain a tax credit or not.  Foreign Earned Income Exclusion There is a concept of Foreign Earned Income Exclusion by which those citizens who are working outside can avail the advantage of the reduction in their taxable income. Taxpayers can also get the benefit of excluding their house expenses; however, this can be availed with the limit. There are certain rules as to who would qualify for this tax exclusion. Conclusion So, now with these important facts related to the taxation associated with the NRIs, it would be easier to have a clear understanding of the tax norms for the NRIs.

How Much Will Future Retirees Receive in Lifetime Social Security and Medicare Benefits?

How Much Will Future Retirees Receive in Lifetime Social Security and Medicare Benefits?

Millennial couples who would retire around 2060 would approximately be receiving around $2.2 million in the form of lifetime Social Security and Medicare Benefits. This amount would be approximately double of the amount that a couple who would be retiring this year would receive.  The total Social Security and Medicare benefits are expected to rise even more for those generations which are born after the year 1995 if these programs would provide the continued benefits.

The Lifetime Social Security and Medicare Benefits and Taxes are mainly based on the reports for the Social Security and Medicare trust funds. According to the projection of this trust, a single male that is earning an average amount of wage is working every year and is retiring at the age of 65 years would receive benefits of around $570,000. In case of those couples who are going to retire this tax year with one of the spouses having a higher wage and the one earning lower wage the amount that would be received as Lifetime Social Security and Medicare benefits would be around $1,113,000.

With the rise in Social Security and Medicare benefits, the gap which is present between the benefits and the payroll taxes the employees owe will keep on growing. The main reason behind this is that the low cost of Medicare was designed in such a manner that it would only provide cover for the hospital costs; but the program now would provide cover for visits made to doctor, outpatient procedures, drugs prescribed and other categories of medical costs.

The increase in benefit amounts

The amount of Social Security and Medicare Benefits would be seeing a significant increase in future retirees. The most important cause behind this is that there is an increase in Social Security Benefits and the Medicare expenses are increasing due to modern health care services. Moreover, when life expectancies are higher it would imply that the Americans who are going to retire in the future would receive many more years of this benefit.

However, the major cause behind the financing gap which is prevalent between the benefits obtained and the taxes is the decrease in the birth rate starting in the mid-1960s. There has been a resulting shrinking in the number of the workers relative to the retirees and this has a special force in the period in which the Baby Boomers had started collecting these benefits in between the tax year 2008 and the mid of 2030s.

These issues would very soon come under the supervision of one head as the Congressional Budget Office Projects. The Government would not be able to pay complete benefits out of the funds of the trust for Social Security by the tax year 2031. 

The new President Biden has also recommended a further increase in the benefits available for the retirees i.e. approximately 9% on an average for those retiring by the year 2065. Moreover, the work of the Urban Institute reflects the fact that these changes would be able to extend the life span of the Trust funds for Social Security by only 5 years. 

Many workers at present have to face an implicit trade-off irrespective of their level of income.  The Government has promised higher Social Security and Medicare Benefits at an older age, but it has also set a small portion of its budget for the younger people and families for other programs such as student loan balances, children fall, and other programs not related to retirement.

 A large scale budget is the only solution to this trending problem related to Social Security and Medicare Benefits. 

Conclusion

So, it is necessary to understand the issues that have been present across several generations related to retirement and health benefits along with the taxes which would be applicable across the country.