IRS provides tax inflation adjustments for the tax year 2021.

by Mounica Kota | Nov 30, 2020 | IRS, IRS credits, IRS e file Return

IRS provides tax inflation adjustments for the tax year 2021.

The IRS has announced the annual inflation adjustments in the tax year 2021 for around 60 tax provisions. These provisions would include the changes in the tax rates and also the other tax changes.

By the Consolidated Appropriation Act of 2020, there has been an increase in the minimum amount of tax addition that is done for your failure of filing tax returns within 60 days from the due date. Beginning with the tax returns that are due after 31^st December 2019, the additional tax which must be paid would be $435 or 100% of the amount of tax which is due and this increase is a rise from $330.

Let us have a look at the tax items of the tax year 2021 which would be of great interest to the taxpayers.

Standard Deduction.

For the married couples who are filing their tax returns jointly for the tax year 2021, the Standard Deduction rises to $25,100 which is an increase of $300 from the previous year.
For the married couples who are filing their tax returns separately or for the single individuals, the Standard Deduction would rise to $12,550 which is a rise of $150 from the prior year.
For the heads of the households, the Standard Deduction would be $18,800 for the tax year 2021 which is an increase of $150 from the previous year.

Personal Exemption.

The Personal Exemption for the tax year 2021 would remain 0 as it was for the tax year 2020.

Marginal Rates.

For those taxpayers who are filing tax returns as single individuals with an income that is greater than $523,600, the marginal tax rate is 37%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $628,300.
For those taxpayers who are filing tax returns as single individuals with an income that is greater than $209,425, the marginal tax rate is 35%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $418,850.
For those taxpayers who are filing tax returns as single individuals with an income that is greater than $164,925, the marginal tax rate is 32%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $329,850.
For those taxpayers who are filing tax returns as single individuals with an income that is greater than $86,375, the marginal tax rate is 24%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $172,750.
For those taxpayers who are filing tax returns as single individuals with an income that is greater than $40,525, the marginal tax rate is 22%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $81,050.
For those taxpayers who are filing tax returns as single individuals with an income that is greater than $9,950, the marginal tax rate is 12%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $19,900.

Itemized Deduction.

In the tax year 2021, there is no limitation on the itemized deductions. This limitation was eliminated by the Tax Cuts and Jobs Act.

Alternative Minimum Tax Exemption.

For individuals filing tax returns as single, the Alternative Minimum Tax Exemption is $73,600 which would start to phase out at $523,600. This Alternative Minimum Tax Exemption is $114,600 for those taxpayers who file their tax returns as Married Couple and this exemption phases out at $1,047,200.

Earned Income Credit.

For the qualifying taxpayers, the Earned Income Credit amount would be $6,728 which is an increase from the Earned Income Credit of $6,660 from last year.

Transportation Fringe Benefit.

The monthly limitation in the case of Transportation Fringe Benefit remains $270 which is considered as the Monthly limitation for the qualified parking.

Foreign Earned Income Exclusion.

For the tax year 2021, the Foreign Earned Income Exclusion is $108,700 which was $108,600 in the previous year.

AGI.

The AGI amount used by the taxpayers who are joint filers for the determination of the reduction in the Lifetime Learning Credit is $119,000.

Estates of Decedents

The Estates of those decedents who have died during the tax year 2021 have an exclusion amount of $11,700,000 which is higher than the exclusion amount of $11,580,000 available for the estates of the descendants of 2020.

Conclusion

Hence, these tax provisions have been introduced by the IRS as a means to help the taxpayers with inflation adjustment.

What is an IRS free file?

by Mounica Kota | Nov 26, 2020 | IRS, IRS e file Return

What is an IRS free file?

The IRS Free File Program can be described as a public-private partnership that has been established between the IRS and tax preparation filing software industry entrepreneurs who are providing their brand name products free of cost. By the IRS free file, taxpayers can prepare their tax returns and file their federal income tax returns online free of cost.

By traditional IRS Free File, taxpayers can obtain free online tax preparations and federal tax filing options on the partner websites of the IRS. These partners are the online tax preparation companies that would help in developing and delivering the service of tax preparation and tax filing to the taxpayers.
The IRS Free File Fillable Forms are the electronic tax forms that can be filled online and without paying any charges as well. However, you must keep in mind the fact that the IRS Free File Option is only made available for those taxpayers who have an income i.e. Adjusted Gross Income (AGI) greater than $69,000.

Overview of the IRS Free File.

You can access the tax preparation software on the IRS website.
There is no compulsion to make use of any particular provider. The provider chosen by you must be working the best according to your situation.
On clicking on the provided link on the IRS website, you can visit the necessary provider. You can check the eligibility criteria and also find out the features offered by each provider.
Now, on the creation of an account, the software provider would show you a step-by-step walk through the process of completion of the tax returns preparation and filing.
The software would provide you with a set of questions find out tax breaks and provide the best options for tax filing based on the answers you have provided.
Every service provider can file the tax returns for you electronically and you would obtain an acknowledgment in the form of an e-mail receipt when the return filing request has been accepted by the IRS.
By the IRS Free File, the tax payment can be made free too. However, if you owe taxes to the IRS then the tax payment can be made by the IRS Direct Pay.

Who can use the IRS Free File?

IRS Free File can be said to be an ideal option for you if you have basic tax situations.
The IRS Free File system will provide the most common tax forms; so, if your tax return filing would need to file some obscure tax form then the IRS Free File is not a convenient option for you.
You must also be quite proficient in the English language to make an ease-free use of the IRS Free File.
Moreover, the processor of your computer and the browser should also be apt for the use of the software. The processor should be the Intel Core 2 Duo 1.8 GHz processor and you must have high internet speed.

Requirements to start the IRS Free File.

Some specific requirements must be fulfilled for starting the use of the IRS Free File.

Your AGI can be accessed by a copy of the previous year’s federal tax returns.
Your valid Social Security Numbers, valid Social Security Numbers for your spouse, and other dependents.
Receipts of Social Security Benefits and Unemployment Compensation.
Income receipts related to any small scale business if you have and income receipts from real estate, rental, partnerships, trusts, S corporations, etc.
Form 1099-INT to show the interest that has been paid to you throughout the year.
Form W-2s which shows your annual wages obtained from employers.
Form 1099-G for highlighting any refund, credit of State and local taxes.
Form 8962 reflecting the Premium Tax Credit.

Rights and Protection of taxpayers.

If you are opting for the IRS Free File method, you would have some of the below-mentioned rights.

Free Federal Tax Return
Protection from any kind of unnecessary fees
Guidance in making your choices
Protection from the bank product fees
Obtain important information on the charges related to State returns

Conclusion.

So, the IRS Free File is a convenient option for tax return filing and tax payment which can be used by the Americans for easy tax procedures.

IRS Taxes and student loans for NRIs in the US (PSLF).

by Mounica Kota | Nov 9, 2020 | IRS, IRS credits, IRS e file Return

IRS Taxes and student loans for NRIs in the US (PSLF).

With the coronavirus spreading its adversities throughout the world, the entire economy across the world has been impacted. Millions of people in the US have lost their jobs and their economic lives have been impacted very badly. Under these circumstances, the different types of loans taken by the common people can be the reason for increased financial instability.

Out of the different categories of loans, a student loan is the one that can create a lot of economic problems for the NRIs, especially during these COVID times.

Public Service Loan Forgiveness (PSLF).

The Public Service Loan Forgiveness (PSLF) is a federal program on which a lot of people rely to have their balances of Student loan to be forgiven. An NRI would be eligible to avail the PSLF if he can meet the below-mentioned criteria:-

If you have a direct loan
If you are employed full-time in the public sector
If you are making 120 qualifying payments in a month under an income-driven repayment plan

Which employment qualifies for PSLF?

You should be working for the below-mentioned employers to be qualified for the PSLF.

You must be working in Government organizations at any level i.e. US Federal, State, Local or Tribal
You must be employed in a non-profit organization which is exempted from tax under Section 501(c)(3)
You must be employed in AmeriCorps or Peace Corps as a full-time volunteer

You would not be able to qualify for availing the benefit of PSLF if you are employed in

Labor Unions
Partisan political Organizations
For-profit organizations which include for-profit Government contractors

Qualifying criteria of private loans for PSLF.

Student loans that have been taken from private lenders are not eligible to qualify for PSLF. The loans such as Federal Direct Consolidation Loans, Federal Direct PLUS Loans, and Federal Direct Stafford Loans qualify for the PSLF.

If you are choosing to consolidate your loan, only the qualifying payments that are made on the New Direct Consolidation Loan would be included in the 120 payments that are needed for the PSLF. If any payments are made before the consolidation of the loan then they would not be counted.

How to apply for PSLF?

There would be two scenarios when it is related to applying for the PSLF.

120 qualifying points –

In case you have already made the 120 qualifying points, then you must fill the Public Service Loan Forgiveness Application to apply. You can easily find out the application for PSLF and the additional information needed at the Federal Student Aid.

Working for making 120 points-

In case, you are working pro-actively towards making your 120 points then you should submit the PSLF Employment Certification yearly or if you are switching your employers.

Taxability of the Forgiven loans.

Any loan money which is considered forgiven under the PSLF would not be considered eligible for taxation. You would not have to pay any federal tax on the money that has been considered eligible under the PSLF.

The forgiveness of your Student loan would not affect your tax returns for the year 2020. You would not have to report anything different on your Federal tax return than the normal amount to report a return. However, the amount of interest on a student loan that would be deducted will look different from the normal interest paid.

CARES Act Relief under PSLF.

According to the provisions of the CARES Act, all payments which were to be made by the common people to the US Department of Education for Federal Student Loans and accrual of interest were suspended until 30^th September 2020. However, the US President extended this suspension date until 31^st December 2020 by signing an executive order. If you are having a federal student loan, then you will not have to do anything separately for the suspension of the payoff or interest accrual. But, if you are interested in making the normal payments for the payback of the loan then you can do so.

Moreover, even though the federal loan repayments have been put on hold but you can still qualify for the PSLF. In case, you are having a Direct Loan and you are employed under a full-time employer during the Suspension period, you would be receiving credit towards the PSLF as if you have made your monthly payments on time.

Conclusion.

So, these tax provisions and deductions with the student loans related to the NRIs in the US would help you to have a clear understanding of the tax structure.

How to sign your tax refund electronically after the tax refund is submitted?

by Mounica Kota | Feb 12, 2020 | IRS e file Return, Personal Identification Number, Practitioner PIN, Self Select PIN, Tax Refund

How to sign your tax refund electronically after the tax refund is submitted?

Tax returns when filed electronically are convenient and can help you in getting back your tax refund very quickly as compared to filing a tax return by paper. In case of electronic filing of tax returns, after filing of the tax return you will have to do your signature electronically.

A tax return can be signed electronically by the use of a PIN (Personal Identification Number). PIN is a six-digit number that is assigned to taxpayers to prevent the misuse of their SSN (Social Security Number) in making fraudulent tax returns. By a PIN, IRS can identify an eligible taxpayer and thus, accept his tax return which has been filed electronically. So, if you have your PIN then it will not allow anyone else to file a federal tax return by using your SSN.

For signing your tax return which you are filing electronically, you will need the use of

Self-Select PIN
Practitioner PIN

Self-Select PIN

By the self-select PIN (SSP) method, you can select any five-digits except all digits being zero. This five-digit number helps in serving as your electronic signature. You can use your date of birth, prior SSP or your original prior-year adjusted gross income (AGI). This will help in authenticating your identity and no one can misuse your identity.

Original Prior Year Adjusted Gross Income (AGI) is used by many taxpayers as SSP for authenticating their identity. Usually, tax-preparing software will use the information of the previous years for the returning customers but if you are using tax-preparing software for the first time then there are various methods to determine your AGI such as

In your Form-1040 of last year, you would find out the AGI on Line 7.
If you have used a paid tax-preparer last year, then you will be able to obtain a copy of the tax return done last year from the preparer.
In case you are using the same tax-preparer as that of the last year, it will most probably have your prior year Adjusted Gross Income.
Also, if you are using different tax-preparing software this year you can access the previous year software and get a copy of the tax return filed.
In case you are above the age of 16 years and are filing the tax returns for the first time then you can use one single zero as your AGI.

Practitioner PIN

By the practitioner PIN method, you are authorizing your tax practitioner to generate your PIN. By this method, the tax-preparer will verify your identity and then give a signed Authorization form to the tax practitioner. This form is Form-8879 which is the IRS e-file Signature Authorization form and you must provide this form to your tax professional along with your SSP which you would have determined. However, in this method, there is no need for determining your previous AGI, date of birth, etc.

Some of the taxpayers such as primary taxpayers who are below the age of 16 years and have never filed a tax return previously or secondary taxpayers who are below the age of 16 years and have not filed the tax return in the previous year cannot use SSP method for identity authentication. However, they can use the Practitioner PIN method for making an electronic signature after-tax refund is filed.

Again while filing your tax returns; if you have to submit specific documents then you can do that by Form-8453 which is the US Individual Tax Transmittal for an IRS e-file return. This form will help in the transmission of paper documents or any supporting documents. IRS always advises the taxpayers to keep a copy of your tax returns and Form-8879 for future form.

Conclusion

Hence, even though the electronic medium of filing tax has made the entire process easier there is a need for maintenance of security while the operation is being performed. This is feasible by authenticating your identity through your electronic signature and the use of self-select PIN, practitioner PIN.