WASHINGTON – The Internal Revenue Service reminds taxpayers that estimated tax payments for tax year 2020, originally due April 15 and June 15, are now due July 15. This means that any individual or corporation that has a quarterly estimated tax payment due has until July 15 to make that payment without penalty.
In response to the COVID-19 outbreak, the Treasury Department and the Internal Revenue Service are providing special tax filing and payment relief to individuals and businesses. This relief applies to federal income tax returns and tax payments (including tax on self-employment income) otherwise due April 15, 2020. This relief does not apply to state tax payments or deposits or payments of any other type of federal tax.
Who needs to pay quarterly?
Most often, self-employed people, including many involved in the sharing economy, need to pay quarterly installments of estimated tax. Similarly, investors, retirees and others often need to make these payments. That’s because a substantial portion of their income is not subject to withholding. Other income generally not subject to withholding includes interest, dividends, capital gains, alimony and rental income.
Special rules apply to some groups of taxpayers, such as farmers, fishermen, casualty and disaster victims, those who recently became disabled, recent retirees and those who receive income unevenly during the year.
Taxpayers can avoid an underpayment penalty by owing less than $1,000 at tax time or by paying most of their taxes during the year. Generally, for 2020 that means making payments of at least 90% of the tax expected on their 2020 return.
Taxes are pay-as-you-go
This means taxpayers need to pay most of their taxes owed during the year as income is received. There are two ways to do that:
Withholding from pay, pension or certain government payments such as Social Security; and/or
Making quarterly estimated tax payments during the year.
Tax Withholding Estimator
If a taxpayer receives salaries and wages, they can avoid having to pay estimated tax by asking their employer to withhold more tax from their earnings. To do this, they would file a new Form W-4.
If a taxpayer receives a paycheck, the new and improved Tax Withholding Estimator can help them make sure they have the right amount of tax withheld from their pay. The tool is now more mobile friendly and replaces the Withholding Calculator on IRS.gov. The Tax Withholding Estimator offers workers, as well as retirees, self-employed individuals and other taxpayers a clear, step-by-step method for effectively checking their withholding to protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time next year.
How to pay estimated taxes
Form 1040-ES, Estimated Tax for Individuals, includes instructions to help taxpayers figure their estimated taxes. They can also visit IRS.gov/payments to pay electronically. IRS offers two free electronic payment options where taxpayers can schedule their estimated federal tax payments up to 30 days in advance with Direct Pay or up to 365 days in advance with the Electronic Federal Tax Payment System (EFTPS).
Need assistance?
Feel free to contact the office for help in calculating and paying your estimated taxes.
If you’re out of work and need income, you might be considering withdrawing from your retirement savings. Normally, if you withdraw money from traditional Individual Retirement Accounts (IRA) and employer-provided accounts before reaching age 59 ½, you have to pay a 10 percent early withdrawal penalty.
Furthermore, withdrawals from your current employer-provided plans are limited to an amount needed to meet a limited set of approved hardships, like avoiding foreclosure, home repairs after a disaster, or medical expenses.
If you’ve experienced hardship as a result of the pandemic, temporary changes to the rules under the CARES Act may give you more flexibility to make a withdrawal from tax-deferred retirement accounts during 2020.
Please note that this blog discusses withdrawals from retirement plans—not retirement plan loans. You may want to spend some time weighing the risks and benefits to withdrawing money versus taking a loan. Learn more about taking a loan from your retirement accounts.
What tax-deferred accounts are affected by the changes?
a traditional IRA
an employer-provided retirement plan such as a 401(k) or 403(b) or other types of defined contribution plans.
Please note that employers and plan sponsors have to opt in by agreeing to follow the CARES Act provisions. Many employers are not offering the option.
How do I qualify for the exemption?
You, your spouse, or dependent was diagnosed with COVID-19 by a CDC-approved test, OR
You experienced adverse financial consequences as a result of certain COVID-19-related conditions, such as quarantine, lay off, furlough, reduction in hours, the closing or reduction of your business, an inability to work due to lack of childcare, or other factors identified by the Department of Treasury.
A coronavirus-related distribution is one that meets this criteria and is made from an eligible retirement plan to a qualified individual from January 1, 2020, to December 30, 2020.
How much can you withdraw without penalty?
You are allowed withdrawals of up to $100,000 per person taken in 2020 to be exempt from the 10 percent penalty. If you have more than $100,000 in one of these retirement accounts, note that it is $100,000 per person and not per account. You can’t take out more than $100,000 total from all of your accounts. Withdrawals from an employer-based account are only possible if the employer agrees to this option under the CARES Act.
Please note that the CARES Act eliminates the 20 percent automatic withholding that is used as an advance payment on the taxes that you may owe on employer-provided plans like your 401(k). This 20 percent withholding is not a requirement when you cash out or withdraw from a traditional IRA plan. So, you may not want to spend the full amount you withdraw because you might owe some of that money in taxes later.
Will the full balance be available to you?
If you are withdrawing from an employer-based account and are relatively new to your job and are not considered fully-vested for retirement purposes, the portion of the funds that were contributed by your employer may not be available to you. Even if you are fully vested, your employer may not allow you to access that portion of your account. Remember, you can’t take out more than $100,000 total.
How long will it take to get the money you withdrew from your accounts?
Regardless of how much you can access, you should know that withdrawing money from a retirement account is not as simple as transferring money from a savings to a checking account. The process could take several weeks. If you need the money for something time-sensitive, give yourself at least a two-week buffer in case paperwork gets delayed or is lost. Many companies are struggling to provide customer support via phone or online, and their ability to handle transactions may be limited as well. Talk to your plan provider or administrator about the steps and ask for an estimated timeline.
Is it better to withdraw from my retirement account now, or let it grow?
You may be withdrawing from a fund that has lost value during the COVID-19 pandemic. When you withdraw money from an investment portfolio in a “low” market, you are limiting its ability to grow and regain its value when the market rebounds. A $100,000 withdrawal today, at a growth rate of 5 percent, would grow to about $160,000 in 10 years without any additional contributions.
Possible tax consequences and ways to deal with them
There are possible tax consequences and different ways to deal with them. While the Act protects you from the 10 percent early distribution penalty, it does not exempt the withdrawn amount from taxes. The amount will be added to your annual income and taxed as such. If you don’t ask to have a percentage of the amount set aside for taxes when you withdraw, you could end up owing a lot when you file your 2020 taxes. The CARES Act distributes the tax burden over a period of up to three tax years, unless you choose not to, and lets you re-contribute some or all the funds that you withdrew by the third year. You may need to hire a tax professional to help you file. We are here to help, contact our office for assistance.
The U.S. Treasury Department has announced that the IRS will begin sending out four million stimulus payments on prepaid debit cards this week instead of mailing paper checks. With these so-called “Economic Impact Payments” (EIP) cards, clients can make purchases, get cash from in-network ATMs and transfer funds to their personal bank account without incurring any fees. They may also check their card balance online, by mobile app or by phone at no cost.
The EIP cards can be used online, at ATMs or at any retail location where Visa is accepted. This free, prepaid card also provides consumer protections available to traditional bank account owners, including protections against fraud, loss and other errors. It will include instructions on how to activate and use the cards.
“Treasury and the IRS have been working with unprecedented speed to issue Economic Impact Payments to American families. Prepaid debit cards are secure, easy to use, and allow us to deliver Americans their money quickly,” said treasury Secretary Steven T. Mnuchin in a press release. “Recipients can immediately activate and use the cards safely.”
The standard stimulus payment is $1,200 for single filers or $2,400 for joint filers. In addition, parents may receive $500 for each qualified child. But these amounts are phased out based on income levels.
EIP cards will be available to taxpayers who don’t have bank account information on file with the IRS. Currently, they are being distributed to those who had tax returns processed by either the Andover or Austin IRS Service Centers. If this applies to clients, give them a head’s up that that the debit cards are coming. They will likely appreciate this timely information.
The IRS began distributing economic stimulus payments in April via direct deposit to taxpayers who had up-to-date information on file. It followed up with payments by paper check starting in mid-May. However, the agency estimated it might take as long as four to five months to mail out the millions of remaining checks. Now it says that sending four million prepaid debit cards will cut down on the time.
The U.S. Treasury has already delivered more than 140 million payments worth $239 billion to taxpayers by direct deposit to accounts at financial institutions, Direct Express card accounts and by check.
EIP Cards are part of the Treasury’s U.S. Debit Card program providing prepaid debit card services to federal agencies for the electronic delivery of non-benefit payments. MetaBank was selected as the Treasury’s financial agent for the U.S. Debit Card program in 2016 following a competitive selection process conducted by the Bureau of the Fiscal Service.
Finally, be aware that some are viewing the use of the EIP cards as a test for future stimulus payments, if any are forthcoming. If all goes well, this might be a simpler and faster approach to distributing money to taxpayers.
WASHINGTON – With a variety of steps underway to speed Economic Impact Payments, the Treasury Department and the Internal Revenue Service urged people to use Get My Payment by noon Wednesday, May 13, for a chance to get a quicker delivery.
The IRS, working in partnership with Treasury Department and the Bureau of Fiscal Services (BFS), continues to accelerate work to get Economic Impact Payments to even more people as soon as possible. Approximately 130 million individuals have already received payments worth more than $200 billion in the program’s first four weeks.
Starting later this month, the number of paper checks being delivered to taxpayers will sharply increase. For many taxpayers, the last chance to obtain a direct deposit of their Economic Impact Payment rather than receive a paper check is coming soon. People should visit Get My Payment on IRS.gov by noon Wednesday, May 13, to check on their payment status and, when available, provide their direct deposit information.
“We’re working hard to get more payments quickly to taxpayers,” said IRS Commissioner Chuck Rettig. “We want people to visit Get My Payment before the noon Wednesday deadline so they can provide their direct deposit information. Time is running out for a chance to get these payments several weeks earlier through direct deposit.”
After noon Wednesday, the IRS will begin preparing millions of files to send to BFS for paper checks that will begin arriving through late May and into June. Taxpayers who use Get My Payment before that cut-off can still take advantage of entering direct deposit information.
How Get My Payment works
The Get My Payment tool provides eligible taxpayers with a projected Economic Impact Payment deposit date. The information is updated once daily, usually overnight. There is no need to check more than once a day. Taxpayers who did not choose direct deposit on their last tax return can use this tool to input bank account information to receive their payment by direct deposit, expediting receipt.
Non-Filers portal remains available
For those not required to file a federal tax return, the Non-Filers: Enter Payment Info Here tool helps them submit basic information to receive an Economic Impact Payment quickly to their bank account. Developed in partnership between the IRS and the Free File Alliance, this tool provides a free and easy option for those who don’t receive Social Security retirement, survivor or disability benefits (SSDI), Railroad Retirement benefits, Supplemental Security Income (SSI) and VA Compensation and Pension (C&P) benefits. The Non-filers tool is also available in Spanish.
Eligible taxpayers who filed tax returns for 2019 or 2018 will receive the payments automatically. Automatic payments will also be sent to those receiving Social Security retirement, disability benefits, Railroad Retirement benefits, Veterans Affairs benefits or Supplemental Security Income soon.
Watch out for scams related to Economic Impact Payments
The IRS urges taxpayers to be on the lookout for scams related to the Economic Impact Payments. To use the new app or get information, taxpayers should visit IRS.gov. People should watch out for scams using email, phone calls or texts related to the payments. Be careful and cautious: The IRS will not send unsolicited electronic communications asking people to open attachments, visit a website or share personal or financial information.
BOSTON – The Baker-Polito Administration announced today that Massachusetts residents who are not eligible for regular unemployment benefits can now apply online for the new Pandemic Unemployment Assistance (PUA) program.
The new federal PUA program provides up to 39 weeks of unemployment benefits who are unable to work because of a COVID-19-related reason but are not eligible for regular or extended unemployment benefits. This includes self-employed workers, independent contractors, gig economy workers, and those with limited work history. Applicants can learn more and apply at www.mass.gov/pua.
“As a Commonwealth, we are committed to doing everything in our power, and moving as urgently as possible to get workers impacted by the COVID-19 crisis the benefits they deserve,” said Governor Charlie Baker. “With the implementation of this new federal benefit program, we can better support workers not normally covered by the unemployment system like those who are self-employed or work in the gig economy.”
“The COVID-19 pandemic has upended the lives of workers across the Commonwealth, and our Administration is doing everything we can to help,” said Lt. Governor Karyn Polito. “The implementation of the Pandemic Unemployment Assistance program in Massachusetts is another important step in our efforts to help those who are economically disrupted by this virus.”
To be eligible for this new program, individuals must provide self-certification that they are otherwise able and available to work but are prevented from doing so by circumstances relating to COVID-19, including their own illness or that of a family member.
Those able to telework with pay and individuals receiving paid sick or other leave will not qualify for PUA. Individuals receiving paid sick leave or other paid leave benefits for less than their customary work week, however, may still be eligible for PUA. Also, those working fewer hours, resulting in a loss of income due to COVID-19, who are not eligible for regular unemployment benefits may be eligible for PUA.
“It is vital that our workforce gets the resources and help they need during this critical time,” said Secretary of Labor and Workforce Development Rosalin Acosta. “I’m proud of everything our team is doing to rapidly implement new programs, and ensure that as many eligible workers as possible get some relief.”
The federal CARES Act signed into law on March 27 created PUA, as well as another temporary federal program called Federal Pandemic Unemployment Compensation (FPUC) that provides an additional $600 weekly benefit for those receiving unemployment benefits or PUA. FPUC provides that additional benefit through July 25, 2020. The Commonwealth announced implementation of FPUC earlier this month.
All approved PUA applications will initially receive the minimum weekly benefit amount, plus the additional $600 FPUC weekly benefit. Once a worker’s wages are verified, weekly benefit amounts may increase. The amount of PUA benefits received is based on the individual’s reported previous income. PUA benefits may not be more than the state’s maximum weekly benefit rate for regular unemployment, which is $823 in Massachusetts.
Weekly benefits, including any increase to your weekly benefit amount, will be retroactive to January 27, 2020, or the date when you became unemployed, whichever is more recent, as long as you became unable to work because of a COVID-19 related reason.
PUA Application Process:
To apply, individuals must provide their Social Security number or US Citizenship and Immigration Services (USCIS) number if not a citizen of the United States, and their wage records for 2019, which includes 1099 forms, pay stubs, or bank statements. Applicants will also need the Social Security numbers and dates of birth for dependent children and, if requesting direct deposit for payment, your bank account and routing numbers. A full list of required documents is available at www.mass.gov/pua.
Please note that, initially, the system can only pay benefits retroactively to the week ending March 14, 2020. Eligible workers will be able to certify for benefits, and will be able to request benefits retroactively to January 27, 2020, if their dates of unemployment make them eligible.
Individuals who are determined ineligible for PUA will receive a written disqualification along with information on how to pursue an appeal. Additional information about the appeals process will be separately posted at a later date. Please visit www.mass.gov/dua for the latest information.
