All about the New Coronavirus relief package and a second stimulus check for the NRIs in the US

All about the New Coronavirus relief package and a second stimulus check for the NRIs in the US

 

On 27th December 2020, the US Government had signed the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 into law. According to this law, a relief package of $900 billion would be delivered to the Americans as a second round of economic stimulus due to the pandemic COVID-19. This bill would help in providing relief to the Americans through the various provisions which have already been put in place by the CARES Act. 

Let us have a look at what this new Coronavirus relief package would include.

Stimulus Payments

Another wave of Stimulus payments for the Americans has begun. This Stimulus payment would be up to $600 for the eligible taxpayers, $1200 for those taxpayers who are filing their tax returns jointly, and also an additional amount of $600 for a dependent child who is below the age of 17 years.  So, if there is a family with two children then they would receive a Stimulus payment of approximately $2400. 

The NRIs in the US do not have to do anything special for being eligible to receive the Stimulus payment. The Stimulus payment would be done by the IRS by using the latest information which is present on the tax returns of the year 2019.

Who would be eligible to receive the Second Stimulus payment?

  • If you are filing your tax returns as a Single and having an AGI (Adjusted Gross Income) of up to $75,000 or if you are married and are filing your tax returns jointly with an AGI of up to $150,000 then you would be eligible for receiving the Stimulus Check.

  • For those NRIs who are filing their tax returns as single and have no qualifying dependents, the Stimulus Check payment would phase out at $87,000 and for married couples filing their tax returns jointly without any dependents the payment would phase out at $174,000.

     

  • There are possibilities of more households being eligible for obtaining the Second Stimulus payment as this bill would expand stimulus payment for those households which have a mixed-status i.e. different categories of immigration and citizenship statuses as well.

     

  • Also, those NRIs who were receiving Railroad Retirement, Social Security Retirement, or SSI income would receive the Stimulus payment without filing a tax return.

 By when would you receive your Second Stimulus payment?

 If you have not received your Second Stimulus payment yet, then you would be receiving it very soon. There have been some errors by the IRS due to which lots of Stimulus payments have been done to wrong accounts.  However, according to the IRS updates the payment for those affected by this error has been done by 8th January and many Americans must have received them too by now.

Extended Unemployment

There has been an increase in the unemployment payments and this would be $300 each week now. These benefits would be extended until 14th March 2021 now. According to this new bill, there has also been an extension to the Pandemic Unemployment Assistance (PUA). This implies that the freelancers and self-employed NRIs in the US can continue to obtain Unemployment benefits.

Moreover, some NRI workers earn a minimum amount of $5,000 in a year but are not able to avail the benefits of the Pandemic Unemployment Assistance as they have an employer. But, now with this New Coronavirus relief package, these workers can even avail the benefit of receiving $100 extra in a week as Unemployment benefits.  

The EITC and CTC

The New Coronavirus relief package would help the Americans having low income in using their income from the year 2019 for determination of their EITC (Earned Income Tax Credit) and even that part of the Child Tax Credit (CTC) which is refundable.

Expansion of the PPP 

Under the New Coronavirus relief package, the NRIs can also receive a second round of payments under the PPP (Paycheck Protection Program). Due to the expansion in the Paycheck Protection Program; there has been an expansion in the category of business expenses which can be forgiven under those loans that have been taken for meeting the supplier costs.

Contractor Paid Leave

Those contractors who have not been able to work for a temporary period due to the restrictions like the closure of facilities would receive reimbursement for their paid leaves taken. 

Eviction Moratorium and Rent Assistance

Furthermore, the New Coronavirus relief package provides an extension for the moratorium on evictions until 31st January 2021. Those families which are not able to pay their past rent or have problems related to future rent payments would be receiving financial assistance.

Extenders related to tax 

Tax extenders would be providing tax relief to individuals as well as NRI families with the help of mortgage relief, relief on medical and education expenses as well.

Conclusion

So, the New Coronavirus relief package and the second stimulus payment would help in providing some amount of financial assistance to the Americans during these difficult times thus, reducing the financial stress.

What exactly is Earned Income Tax Credit?

What exactly is Earned Income Tax Credit?

What exactly is Earned Income Tax Credit?

 

The Earned Income Tax Credit (EITC) is helpful in obtaining a tax break for those individuals and families who have low-to-moderate income categories. In case, you are eligible to claim this credit you would be able to reduce your taxes and increase your tax refund. The refund you would obtain would be the amount of your credit if the EITC credit is more than the amount of taxes you owe.

According to the IRS report, around 25 million taxpayers from the US have received EITC last year and the average EITC received was approximately $2,461. However, millions of Americans are still unaware of the advantages that can be availed by the Earned Income Tax Credit. There are a lot of Americans who miss out on the EITC as they are qualified for claiming the credit newly or they do not file the tax returns as their income falls below the filing limit of the IRS.

Eligibility to claim the Earned Income Tax Credit 

You would be eligible to claim the EITC in case you can meet the income limits that are mentioned below.

  1. You must be a US citizen.
  2. You are above the age of 25 years or you are having qualifying children.
  3. You are not filing your tax returns under the status “Married filing separately”.
  4. You are obtaining your Earned income from employment and the unemployment income does not count.
  5. You would be qualifying for EITC if you are obtaining your income from any home business or you provide services.

Income limits to be eligible for claiming EITC

The income limits are adjusted every year and for every year the earned income and AGI (Adjusted Gross Income) must not be more than the below-mentioned figures.

  1. $50,594 for those filing tax returns as single with three or more qualifying children or $56,844 for those married and filing tax returns jointly with three or more qualifying children.

     

  2. $47,440 for those who are filing their tax returns as single with two qualifying children or $53,330 for those who are married and filing tax returns jointly with two qualifying children.

     

  3. $41,756 for those filing tax returns as single and having one qualifying child and $47,646 for those who are married filing their tax returns jointly and having one qualifying child.

     

  4. $15,820 for those filing tax returns as single and having no qualifying children and $21,710 for those who are married filing their tax returns jointly and having no qualifying child.

What is the amount of credit?

The actual amount of credit you can claim would depend on your income and the number of your qualifying children.  The maximum credits that can be obtained for the tax year 2020 are mentioned below:-

  1. $6,660 for those who are having three or more than three qualifying children
  2. $5,920 for those who are having two qualifying children
  3. $3,584 for those taxpayers having one qualifying child
  4. $538 for those taxpayers who have no qualifying children

What do you mean by a qualifying child?

For a child to be qualifying for the EITC, there are some tests which the child must meet.

  • Age –
    The child must be below the age of 19 years or the age of 24 years if he is a full-time student or he can be of any age if he is permanently disabled.

  • Residency
    You and your child should have lived in the US together for at least a period of more than half a year.
  • Relationship
    Your qualifying child can be your son, daughter, stepchild, foster child, or your brother, sister, half brother or sister, or step brother/sister.

     

  • Joint ReturnYour child would not be a qualifying child for claiming the EITC if he has filed a joint return. 

 Conclusion

Hence, EITC (Earned Income Tax Credit) is one of the best credits which can be of great advantage for those Americans who are struggling with their finances. Qualified tax software must be used by the Americans to maximize their EITC. However, it is advisable not to commit any fraud to obtain the credit as it can lead to being penalized by the IRS.

Tax Deductions for single NR Indian Women in the US

Tax Deductions for single NR Indian Women in the US

Tax Deductions for single NR Indian Women in the US


The tax season has arrived and it’s the perfect time for your finances to boost up. This is the perfect time for claiming your tax deductions and receiving maximum tax refunds. If you are a single NRI woman residing in the US then you have a lot of opportunities to knock your taxes right now.

A win-win with your taxes

As a single NRI woman in the US, you will not have to wait for the arrival of your various financial documents such as both the sets of Form W-2, Form 1099s, and some other financial documents, unlike the couples.  Since there is less paperwork involved and less information to be collected, you can start filing your tax returns immediately and thus; obtain your tax refunds soon. 

For maximizing your tax refunds, there are a few ways by which you can get the best tax refunds this tax season.

Your correct tax filing status

  • One of the most important steps you can take while filing your Federal taxes is to ensure that you are filing your tax returns by using the correct filing status.

  • According to the IRS, there are five major categories under which you can file your tax returns i.e. Single, Married but filing tax returns separately, Married but filing tax returns jointly, head of a household, and a qualifying widower who has a dependent child.

  • Your taxes, tax credits, deductions, standard deductions, etc. would be mainly based on your tax filing status.

  • If you are filing your tax returns with the Single status, then the current Standard Deduction that can be claimed is $12,400.

  • If you are filing your tax returns as the “Head of the Household” status, then you can claim a bigger Standard Deduction of $18,650. However, this can be feasible if you have the status of both Single and also supporting a dependent.

The 401(k) plan and the IRAs

After your filing status, the next thing which you need to consider is the 401(k) plan. This can be an excellent way for you to obtain some tax benefits. 

  • In case contributions are being made to your 401(k) plan, and then it is one of the best things which you have done. By this, the contributions which you are making are pre-tax that would help in lowering your taxable income. Moreover, by these contributions to the 401(k) plan your investments would easily become tax-free.

  • Furthermore, you can also make contributions into your 2019 IRA up to an amount of $6,000 and $7,000 if you are 50 years or more. By this, you would get a good tax deduction on your taxes for 2020.

Family and Dependent credits

  • If you are a single parent and you are meeting the income limits then the EITC (Earned Income Tax credit) would be a great benefit.

  • This credit can help in lowering the taxes which you owe for payment and you can also qualify for obtaining a refund.  In case, you are a single mother having 3 kids or more than 3 kids then you can obtain a credit of up to $6,660.

  • In general, the biggest expense associated with children is the daycare expenses. Those expenses can be easily offset by using the Child and Dependent Care Credit.

  • The Child and Dependent Care Credit can vary up to 35% of your expenses up to $3000 for one child i.e. $1050 and 35% of your expenses up to $6000 i.e. $2100 for two children.

  • In case, you are having a qualifying child who is below the age of 17 years then you would be able to claim Child Tax Credit i.e. $2000.

  • By the deductions, you are lowering the taxable income you have whereas with tax credits you are decreasing the taxes you owe.

Conclusion

So, if you are a Single NRI woman in the US then these tax deductions and credits can help reduce your taxes and increase your refunds.

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.

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.