The new stimulus law passed by Congress and signed by President Trump provides individuals and businesses some much-needed relief with a massive $2 trillion-plus economic aid package. This is of course in response to the massive and sudden economic damage caused by the coronavirus shutdowns.
Starting with individuals, federal income tax rebates are coming. Singles can expect $1,200 while married couples filing jointly will get $2,400 plus an additional $500 for each child under age 17. As the money is designed primarily to help the lower and middle class tiers of workers, higher income earners won’t get the money. It completely phases out for joint filers with income over $198,000, heads of households at $136,500 and single filers at $99,000.
Did you file your 2018 and 2019 tax returns?
Generally speaking, rebates will be tied to information from your 2018 and 2019 returns. First, the IRS looks at your prior year’s tax return (2019) – your adjusted gross income (AGI), number of children, etc. If no return was filed in 2019, they’ll go to your 2018 return and use that data. For Social Security recipients who don’t need to file don’t have to worry as the IRS will use Form SSA-1099, which is the Social Security Benefit Statement, for rebates.
Stimulus Relief Payments are Advance Tax Credits
The rebate is typically an advance payment of a special 2020 tax credit, so you’ll need to reconcile your rebate on your 2020 tax return. For most people, the rebate will equal the tax credit allowed. It’s unlikely there will be any “penalties” for rebates that happen to be over your allowable tax credit.
Direct Deposit for Faster Payments
The IRS is moving as fast as it can to get the rebate money out to people and those with direct deposit on file with the IRS should start receiving payments in mid-April. Those without their bank accounts on file will wait longer for paper checks and that could take months.
Ease on Retirement Accounts
The stimulus package includes retirement-related relief as well. Individuals may skip taking their required minimum IRA distributions as well as from employee plans like 401(k) and 403(b) for 2020 without penalties. Additionally, the 10% penalty on payouts before age 59.5 from retirement accounts is waived on up to $100,000 of crisis-related payouts, and funds that are repaid within 3 years are treated as tax-free rollover distributions. If not repaid, the tax is spread over 3 years.
Deferred Social Security Payroll Tax
Employers and the self-employed can defer payment of their 6.5% share of their social security tax on compensation paid from March 27 – December 31 with half of the deferred amount due by the end of 2021 and the other half by the last day of 2022. However, employers will still need to make timely deposits of their employees’ share. Finally, the self-employed can defer 50 percent of the SECA tax.
Should you have any questions about how the new federal stimulus package could affect your business or tax planning, feel free to contact us at (603) 232-7436. We’d like to be as helpful as we can during this stressful time.