Tax Implications on the decrease of interest rates by the IRS in the 3rd quarter

Tax Implications on the decrease of interest rates by the IRS in the 3rd quarter

Tax Implications on the decrease of interest rates by the IRS in the 3rd quarter

The pandemic COVID-19 has brought huge havoc in the lives of the Americans. Millions of Americans have been affected by this dreadful disease and are struggling between life and death. Businesses across the country have been shut down some temporarily and many permanently. The rate of unemployment in the country is soaring high and it is a state of economic fallout for the Americans.

In such adverse circumstances, the US Government has taken up various initiatives by which the economic lives of the Americans can be improved up to a certain extent. The deadline for Federal Income tax return filing and payment due for 15th April 2020 had been postponed till 15th July 2020. The Federal Government had also made Stimulus Checks available for the Americans under the CARES Act. Many other unemployment benefits, paid leave benefits and much more have been made available for the Americans to alleviate the burden they are facing due to the impact of COVID-19.

One such initiative by the IRS to bring some relief to the taxpayers during these stressful times is the lowering of the tax interest rates for the third quarter of the year 2020.

Decrease in the tax interest rates for the 3rd quarter

On 4th June 2020, the IRS announced that the interest rates for the 3rd quarter 2020 will be decreased effective since 1st July 2020. 

The new rates after the reduction would be as follows.

  1. 3 percent for overpayments
  2. 2 percent in case of any corporation
  3. One-half or 0.5 percent for the portion of a corporate overpayment which exceeds 10,000
  4. 3 percent for any underpayments
  5. 5 percent for large corporate underpayments

According to the Internal Revenue Code, the rate of interest can be determined quarterly. For taxpayers who are other than the corporations, the rate of overpayment and underpayment is equivalent to the federal short term rate plus 3 percentage points.

Interest rates on the Overpayment and Underpayment of taxes

Section 6621 of the Internal Revenue Code helps in the establishment of the interest rates on the overpayment and the underpayment of tax.  According to the Section 6621(a) (b), the overpayment rate can be calculated as the sum of the federal short-term rate plus 3 percentage point (with an exception of 2 percentage points in case of a corporation), except for the rate for that portion of a corporate overpayment of tax that exceeds $10,000 for a taxable period is the sum of the federal short-term rate added to 0.5 of a percentage point. 

According to Section 6621(a) (2), the underpayment rate can be said to be the sum of the federal short-term rate plus 3 percentage points. 

Section 6621(c) states that for the purposes of interest payable under Section 6601 on a large corporate underpayment, the underpayment rate under Section 6621(a)(2) can be determined by the substitution of 5 percentage points for 3 percentage points.

Furthermore, Section 6621(b) (1) states that the Secretary would be determining the federal short-term rate for the first month in each quarter. Section 6621(b) (2) (A) states that the federal short-term rate determined for any month under Section 6621(b) (1) is applicable for the first quarter starting after that month.  As per Section 6621(b)(3), the federal short-term rate for any month is the federal short-term rate determined during that month by the Secretary with accordance to Section 1274(d) which is rounded to the nearest full percent.

The Federal short-term rate which is rounded to the nearest full percent based upon the daily compounding determined in April 2020 is 0 percent. Thus, accordingly, an overpayment rate of 3 percent and an underpayment rate of 2 percent are established for the quarter beginning 1st July 2020.  The rate of overpayment for the portion of a corporate overpayment which exceeds $10,000 for the quarter beginning 1st July 2020 is 0.5 percent. The rate of underpayment for large corporate underpayments for the quarter beginning 1st July 2020 is 5 percent. These rates would be applicable to the amounts bearing interest during that particular quarter.

Sections 6654(a)(1) and 6655(a)(1) state that the underpayment rate which has been established under section 6621 is applicable in the determination of the addition to tax under sections 6654 and 6655 for failure by a taxpayer in payment of the estimated tax for any taxable year. So, the 3 percent rate is also applicable to estimated tax underpayments for the third quarter which begins on 1st July 2020. Moreover, according to section 6603(d) (4), the rate of interest on the Section 6603 deposits is considered to be 0 percent for the third calendar quarter in 2020.

What to expect in the Second Stimulus Check?

What to expect in the Second Stimulus Check?

What to expect in the Second Stimulus Check?

The US Legislation has passed a relief package of $3 trillion known as the HEROES Act n 16th May 2020. By now, most of the Americans have received their stimulus checks associated with the CARES Act and there has been a declaration of an official recession. The rate of unemployment across the country has increased exponentially making it quite necessary for another round of Stimulus payment. 

The Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act would help the American households in obtaining another round of Stimulus payments. The Heroes Act would be offering larger stimulus payment to the Americans than that offered by the CARES Act. This bill is currently with the Senate House and has been passed successfully by the Democrat-controlled House.

The need for the Second Stimulus Check

The need for the second Stimulus check by the Americans is quite justified as the pandemic COVID-19 has caused huge losses to the health and the economy of the Americans. Millions of Americans have lost their jobs and there are speculations for further loss of millions of jobs in the US. However, some reports have stated the information about the steady lowering in the unemployment rate in the US. The unemployment rate in the US has dropped by 1.4% from April and there have been around 2.5 million jobs added back since March. This can be considered as a major reason for the Senate to reject this bill of the Second Stimulus Check.

Eligibility to obtain the Second Stimulus Check

If a taxpayer was eligible for obtaining the first Stimulus check then he would be eligible for obtaining the Second Stimulus check. According to the most recent tax returns filed by a taxpayer, people who earn less than $75,000 would be obtaining $1200 whereas married couples can earn $2400 as Stimulus payment.

The age restriction for qualifying as a dependent was set as below 17 years by the CARES Act whereas the HEROES Act has removed this qualifying criterion. Moreover, those taxpayers who have an earning up to $100,000 in a year would receive a prorated amount as Stimulus payment.

Money to be obtained with the second stimulus check

  1. Every member of a household would be receiving $1200 inclusive of the children as well. Those taxpayers who are filing their tax returns with the single status and have an earning less than $75,000 would receive the entire payment. This income threshold is $150,000 for those taxpayers who are married and are filing their tax returns jointly.
  2. Under the Heroes Act, the total payment for one family would be capped at $6,000.

 

Provisions for Older students under the HEROES Act

  1. Under the CARES Act, dependents whose age was below 17 years would be eligible for the receipt of the $500 payment. This excluded many high school students, seniors, and many other college students who were already claimed as dependents on their parent’s tax returns from obtaining the Stimulus Check.
  2. However, the HEROES Act ensures that all dependents who might be college going students or teenagers would receive the Stimulus Check of $1200.

Provisions for Immigrants to obtain the second Stimulus Check

The CARES Act needed an American to have a Social Security Number as a mandate for obtaining the Stimulus payment. However, the HEROES Act needs a taxpayer to only have the Taxpayer Identification Number (TIN) to obtain the Stimulus check.

The Taxpayer Identification Number is used by the immigrants to pay their taxes and thus, it is feasible for the immigrant taxpayers to obtain the Second Stimulus check. 

By when would the Second Stimulus Check be received?

It is quite uncertain as to by when the Senate would be considering the Second Stimulus Check payments. However, it has been estimated that the Stimulus Checks would reach the Americans early this time as compared to that of the CARES Act. Millions of Americans have verified their information on the “Get My Payment” site of the IRS and this would make the payments faster this time. According to experts, if the bill takes another two weeks for approval then the Americans would be seeing their payment for the Second Stimulus Package by the end of July or early of August. 

Hence, with the impact of the pandemic intensifying daily this initiative by the US Government would be of real help to the Americans in overcoming the economic crisis caused by the pandemic COVID-19.

How to track the status of your tax refunds amidst pandemic?

How to track the status of your tax refunds amidst pandemic?

How to track the status of your tax refunds amidst pandemic?

The pandemic COVID-19 has adversely affected the lives and livelihoods of millions of Americans. With huge unemployment and economic crisis throughout the country, many Americans are looking forward to their Federal Tax refund as a source of obtaining some money. The inquisitiveness among the taxpayers about “Where is my tax refund” is quite natural in such distressful times.

In general, the tax refund processing time is different for the different methods by which the tax refund has been filed.

  1. For those taxpayers who have filed their tax returns electronically with direct deposit, the tax returns are processed within 21 days of acceptance of the e-filing by the IRS.
  2. For those taxpayers who have filed their tax returns through paper, can expect their tax returns to be processed within 6weeks to 8 weeks of receipt of the return by the IRS.

 How can the status of tax return be checked?

The IRS tool “Where’s My Refund?” can be used by taxpayers to access the status of their tax returns.  To login into this IRS tool, there would be the need for three major pieces of information

  1. Social Security Number or Taxpayer Identification Number
  2. Filing Status of the taxpayer
  3. The exact refund amount which the taxpayer would obtain

Moreover, taxpayers can access their tax return status from their mobile phones by using the app IRS2Go.  This app can be downloaded for free on Google Play, Amazon, etc. and can be used to check tax refund status, make a tax payment, or obtain any free tax assistance if needed.

When can taxpayers start checking their refund status?

 

Taxpayers can start checking the status of their tax returns within 24 hours after their tax return which has been filed electronically is received by the IRS.

In case the taxpayer had filed tax returns by paper medium, then his status would take around 4 weeks to reflect in the IRS system. So, the taxpayer should wait for 4 weeks before checking the status of his tax refund.

Information available on “Where’s My Refund” tool 

On the IRS tool “Where’s My Refund”, once the details are entered by the taxpayer, the screen would show up any of these three statuses.

a. Return Received

This would mean that the tax return has been received by the IRS and is being processed.  The taxpayer needs to wait for at least 21 days within which he would be receiving his tax returns.

b.Return Approved

 When the tax return status says “Return Approved” it means that the return request has been processed by the IRS and has been approved as well. This status is usually seen after three weeks of the “Return Received” status. 

The taxpayers can even see an estimated date by which their refund money would be deposited into their specified bank account. There can be instances in which the taxpayers do not receive their money on the estimated date; the IRS suggests the taxpayers facing such issues to first contact their bank to ensure that there are no problems associated with the account.

c.Refund Sent

When the status says “Refund sent” it means that the IRS has sent your tax refund to your bank account by direct deposit or has sent your check via mail. The date on which the return payment was sent must be mentioned in this tool. 

The taxpayers should keep in mind that even if the refund has been sent by the IRS, your bank would take at least 1-5 business days to deposit the money into your account. Also, if the return has been filed by paper means then the check would reach the taxpayer within several weeks via mail.

In case, the taxpayer owed some money to the IRS because of tax due, Federal Student Loan, or any other cause; then that amount would be reduced from the refund by the IRS. The IRS would inform you about any such deductions made from your refund on this webpage.

Status of Amended Tax Return

In case, amended returns have been filed by a taxpayer they would take up to around three weeks to reflect in the IRS system. Moreover, it would take 16 weeks or more for the processing of Amended tax returns.

Taxpayers can easily track the status of their Amended Tax return by the tool “Where’s My Amended Return” tool.  There are three statuses which can be seen for Amended Tax Return in this tool i.e. 

  1. Received – This means the taxpayer’s amended tax return has been received and is being processed.
  2. Adjusted – The status Adjusted means the IRS made adjustments into the account of the taxpayer.
  3. Completed – This means the tax refund has been processed by the IRS and all necessary information related to this has been mailed to the taxpayer.

References

  1. https://www.usa.gov/check-tax-status
  2. https://www.efile.com/tax-refund/tax-refund-status/
  3. https://www.irs.gov/newsroom/check-status-of-a-tax-refund-in-minutes-using-wheres-my-refund
  4. https://bench.co/blog/tax-tips/irs-refund-status/
  5. https://blog.turbotax.intuit.com/tax-refunds/wheres-my-tax-refund-how-to-check-your-refund-status-18855/

 

 

How to leverage your income tax refunds amidst the COVID-19 pandemic?

How to leverage your income tax refunds amidst the COVID-19 pandemic?

How to leverage your income tax refunds amidst the

COVID-19 pandemic?

Currently, the entire world is facing the dreadful consequences of coronavirus. Millions and millions of people have been impacted and the global economy has come to a standstill. In the US, the impact of the pandemic COVID-19 is intensifying each day. Millions of Americans have become unemployed and the economy of the country is regressing.

In such difficult times when the livelihood of the common people has been impacted in such a worse manner, Americans see a dint of hope in the Income-tax refunds which they would obtain. Even though the Federal Government has provided Stimulus Checks, additional money is always helpful in such bad times.

If you have filed your Income Tax Returns and are waiting to receive a hefty amount from the IRS, then you should also think about avenues by which you can leverage your refunds during these critical times.

Let us have a look at some of the best options to leverage your income tax refunds during this pandemic COVID-19.

a.Emergency Savings Account

You should open a savings account and try to put a major part of your Income tax refund into that account as an Emergency Savings Account. This would be helpful in case emergencies are arising due to the pandemic such as a medical emergency or you lose your job, unfortunately. This Emergency Savings Account will be your savior in difficult times.

b.Increase your contribution into your 401(k)plan

 You can utilize this opportunity to increase your contribution to your 401(k) plan. In case, you have been contributing only 3% of your paycheck but your employer matches up to 6% then you can double the pre-tax income which you are investing in your retirement funds. It can lead to your monthly paycheck being a little low but you will be investing for good and your taxable income would also be low.

 

c.Investment into Stocks

When you have already made your contributions to your retirement account, then you must invest your income tax refunds into purchasing stocks or mutual funds. Generally, the stock market would deliver better returns than that of a Savings Account and Treasury bonds. But, sometimes there are risks involved in the stock market and the returns are not guaranteed. Investment in stocks by tax refunds is a good idea if you are saving to attain long-term goals.

d.Paying down the existing debts

 When you obtain your Income Tax returns, it is wiser to pay off your debts quickly. The high-interest debts must be paid off on priority as this would help you in saving a lot of money in the future. Usually,debts are associated with credit card dues and if you are fortunate enough to not have credit card dues then you should pay off your car loan or student loan.

 

e.Contribute to Regular or Roth IRA 

 If you are thinking about your long term savings, you must contribute your income tax refund into Regular or Roth IRA. If you and your spouse have a modified AGI of less than $203,000 then you can be able to contribute up to $6000 to Roth IRA in 2019 or $6500 if you are 50 years or above. 

 

f.Contribute to HSA

 You can open HSA if you do not have one as HSAs are a very good option to keep aside some money for medical expenses i.e. may be routine or emergency medical expenses. Your unused funds in the HSA keep on rolling to the consecutive years and the remaining money can be utilized during retirement once you are above 65 years of age.

g.Investment into an ETF

You can invest your income tax refunds in broadly diversified ETFs which are a safe investment option. ETFs would include thousands of stocks, low volatility, and any risk compared to individual stocks. Investing in ETFs would be good as they are passive and have a low expense ratio.

h.Make donations

This is a philanthropic option and perhaps one of the best ways to utilize your money obtained by a tax refund. You can make your donations into mainly those charitable organizations which support a good cause and are working towards a cause that you support.

In addition to all these available tax refund investment options, you must some a considerable amount of cash in your hand during these emergency times. Moreover, you can invest some of your money in self-care avenues like taking up any online courses/training or workshop. This would be helpful in your career in the future and would return you an incremented paycheck 

 

COVID-19 Financial Scams to be reported to the IRS

COVID-19 Financial Scams to be reported to the IRS

COVID-19 Financial Scams to be reported to the IRS

In March the US Government had declared a $2 trillion economic relief package under the CARES Act for providing relief and support to the Americans who have been facing economic challenges due to the outbreak of the pandemic COVID-19. According to the provisions of the CARES Act, economic impact payments would be sent to the eligible Americans. Furthermore, there are propositions for passing another act i.e. the HEROES Act which would also be providing further another round of economic impact payments to the Americans. 

However, with these provisions for Economic Impact Payment to the distressed Americans, many criminal frauds related to these payments have also started blooming. These frauds can include using various lures related to the pandemic and stealing of personal/financial information of common people. The IRS has been continuously reminding the people to safeguard themselves against tax frauds and any other financial scams that are related to the COVID-19 pandemic.

Scams and threats related to COVID-19 

The CI (IRS Criminal Investigation Division) has seen a significant rise in the number of scams and frauds related to the Economic Impact Payments and other financial schemes. The CI has encountered several instances of criminals using emails and text messages which are stimulus-themed to find out personally identifiable information and details related to bank accounts. Many telephone calls or emails have been received by the common people that suggest that they can get more Stimulus money or even obtain the Stimulus money faster by sharing personal information and paying certain processing fees. The phishing schemes send emails or text message which contain terms like “COVID-19”, “Coronavirus”, “Stimulus”, etc. to grab the attention of the common people.

Moreover, the IRS CI has also encountered scams which are related to the selling of fake COVID-19 at-home test kits, vaccines, pills, and other treatment methodologies for COVID-19. Many other scams claim to be selling huge quantities of medical supplies by the creation of fake websites/shops, fake social media accounts, fake emails, etc. These fraud suppliers then fail to deliver the supplies to the customers once the fund has been received by them.

 Numerous other COVID-19 related scams involve the creation of fake charities that solicit donations for individuals, groups, and areas which are affected by the pandemic. Many such criminals are also offering opportunities to make investments into those companies which are working on vaccine development for COVID-19. They portray that the company would increase in value as a result and the promotions are put in the form of research reports which make predictions about target price and relate to microcap stocks or the low-cost stocks issued by those companies which are small and have limited public information.

What to do when you encounter COVID-19 scams?

The IRS has been constantly reminding the common people to report any phishing or fraudulent scam encountered by them during the COVID-19.

a. Scams related to COVID-19 must be reported to the National Center for Disaster Fraud (NCDF) Hotline at the number 866-720-5721. The scam can also be reported through the NCDF Web Complaint Form. The NCDF can investigate and prosecute the criminals involved in any scams which are related to natural or any man-made disasters. The Hotline Staff would obtain necessary information related to your complaint which would be further reviewed by the enforcement officials.

b.The taxpayers can also inform any such scams encountered during the COVID-19 to the IRS. Taxpayers receiving unsolicited emails or social media attempts for providing personal information from an organization that appears to be the IRS or closely connected to the IRS must forward those emails to phishing@irs.gov.

c.The Treasury Inspector General for Tax Administration (TIGTA) can help in investigating those external attempts that are being made to interfere with the Federal Tax Administration. Taxpayers can report about COVID-19 scams online by using the link TIPS.TIGTA.gov

d. Taxpayers are suggested to avoid the scammers and not to engage with them even if they think they are in the upper hand. 

e.Common people can enhance their knowledge about phishing and fraud related to COVID-19 by visiting the official webpage of IRS i.e. IRS.gov.   

Hence, criminals always keep looking for an opportunity by which they would be able to exploit the bad situations and attain some benefits from it. This pandemic COVID-19 is one such opportunity which is being utilized by the scammers. Taxpayers must be aware and should immediately report anything suspicious to the IRS.

 

Top #10 most important things to know about the Economic Impact Payment Information Center

Top #10 most important things to know about the Economic Impact Payment Information Center

Top #10 most important things to know about the Economic Impact Payment Information Center

Under the provisions of the CARES (Coronavirus Aid, Relief and Economic Security) Act of the Federal Government, the citizens in the US have been receiving their Economic Impact Payments (EIP). The Economic Impact Payment which is being received by the Americans is calculated automatically by the IRS.

However, there are many Americans, who have several queries related to the Economic Impact Payments such as their eligibility, amount of payments, by when to expect the EIP, etc. The answers to these queries related to the Economic Impact Payments can be obtained by the common people at the Economic Impact Payment Information Center.

Some of the major things which Americans must know about the EIP Information Center can be listed below.

  1. Eligibility for Economic Impact payment 
  2. Request for EIP
  3. Calculation of EIP
  4. Receipt of EIP
  5. Non-Filer Tool
  6. Social Security
  7. Railroad retirement
  8. Recipients of the Department of Veteran Affairs benefit
  9. Additional Information
  10. Return of EIP

Americans Must Know About The EIP Information Center 

a.Eligibility for Economic Impact Payment

1.US citizens and US resident aliens who are filing tax returns as individuals or heads of households will be eligible for receiving EIP of $1200 whereas those who are married and are filing returns jointly would receive an EIP of $2400.

2. To receive EIP the taxpayers must not be the dependent of another taxpayer, should be having a valid Social Security Number and their AGI (Adjusted Gross Income) must be up to the given limits

  • For single individuals or married couples but filing tax returns jointly, the AGI should be up to $75000.
  • For those taxpayers who are filing tax returns as head of household filers, the AGI should be up to $112,500.
  • For taxpayers who are married and are filing their tax returns jointly, the AGI must be up to $150,000.

3. In case, an individual does not have a valid Social Security Number, is a non-resident alien or has filed Form 1040-NR, Form 1040NR-EZ, Form 1040-PR or Form 1040-SS for the year 2019 will not be eligible to obtain the EIP.

b.Request for EIP

  1. If an individual has already filed the tax returns for 2018 or 2019, then there is nothing more to be done for receiving the EIP.
  2. The IRS would use the information of the 2019 tax returns for calculation of the EIP or would use the information of 2018 in case of non-filing of the 2019 returns.
  3. Taxpayers who have not filed returns for 2019 or 2018 can visit the IRS website and input their payment information in the link provided for Non-filers.

c.Calculation of EIP

  1. Individuals who are eligible for receiving EIP and are filing tax returns with a single status would receive $1200 as the EIP.
  2. If two individuals are filing their tax returns jointly, they are eligible to obtain an EIP of $2400.
  3. The eligible individuals would receive an additional $500 for each qualifying child who has been claimed during the filing of tax returns.

d.Receipt of EIP

  1. If an individual has received his tax refund for the year 2019 or the year 2018 in case of non-filing in 2019 by the method of Direct Deposit, then the IRS would use the latest information ad send your EIP by Direct Deposit.
  2. Moreover, in case of non-receipt of EIP through Direct Deposit the IRS would send the EIP to the mailing address present in the file of the IRS.

e.Non-filer Tool

  1. The Non-Filer: Enter Payment Info Here tool should be used for receiving EIP by those eligible individuals who have not filed tax returns for 2019 or 2018 and do not receive Social Security Retirement, Supplemental Security Income (SSI) or Survivor Benefits, Veteran benefits or any other benefits related to Railroad retirement.
  2. If you have filed your tax returns or you receive federal benefits, then the need for using the Non-filer tool is ruled out.

 

 

 

f.Social Security

The Social Security recipients who might not have filed tax returns for 2019 or 2018 but receive Form SSA-1099 will receive their EIP by the same method as that of the receipt of the Social Security Benefit.

g.Railroad Retirement

The recipients of Rail Road Retirement who might not have filed tax returns for 2019 or 2018 but receive the benefits by RRB-1099 will receive their EIP by the same method as that of the receipt of the Rail Road Retirement Benefit.

h.Recipients of the Department of Veteran Affairs benefit

The recipients of the Department of Veteran Affairs Benefit who might not have filed tax returns for 2019 or 2018 but receive Form SSA-1099 or RRB-1099 will receive their EIP by the same method as that of the receipt of the benefit.

i.Additional Information

Taxpayers need to be cautious about scam artists who would try to use the EIP as a strategy for performing other scams related to stealing. Taxpayers must remember that information about EIP can be obtained only by visiting the official IRS webpage and not by any calls, text, or emails.

j.Return of EIP

  1. For the return of EIP which was in the form of Direct Deposit, check, or money order; money order or personal check must be immediately sent to the IRS with information related to the SSN.
  2. If the payment was received in the form of a paper check, then it can be sent back to the appropriate section of the IRS by writing “Void” on the back of the check.

Hence, taxpayers can avoid calling up IRS for queries related to the EIP and rather visit the Economic Impact Payment Information center for resolving their queries.