Is a Higher Net Paycheck a Sign of a Problem?

Is a Higher Net Paycheck a Sign of a Problem?

Is your net paycheck larger than it used to be for no known reason?  If so, it could be the result of less taxes being withheld – and it may not be a good thing.

The Problem

President Trump signed an executive order on September 1 allowing taxpayers to defer Social Security and Medicare taxes that are typically withheld through payroll.  While this may give you more net pay right now, it will have to be repaid later unless legislation is passed forgiving the tax.  This means that after the first of the year you might find that the withholding resumes AND you have to start repaying the taxes that were not withheld in 2019.  This may be an unwelcomed surprise.

What you need to do

  • Compare your pay stubs. Get your last pay stub from August and your current pay stub. Did the amount of Social Security and Medicare taxes withheld from your August paycheck change?  If so, you may be looking at a tax repayment bill in early 2021.
  • Keep an eye on each paycheck. Payroll departments are struggling to figure out if they are required to comply with the presidential executive order, payroll providers are trying to figure out how to comply, and everyone is wondering whether the tax obligation will be permanently forgiven.
  • Be prepared to pay it back if necessary. If Social Security and Medicare taxes have not been withheld from your paycheck through the end of 2020, be prepared to write Uncle Sam a check to pay these taxes in early 2021.
High School Students! Here’s How You Can Make College More Affordable.

High School Students! Here’s How You Can Make College More Affordable.

Students can earn college credits while still in high school

With the cost of college rising rapidly, it can be overwhelming to think about how to pay your way through school for either yourself or your kids. Fortunately, saving hundreds, even thousands, is possible. Teenagers can help keep down the cost of their future college tuition by taking the following classes and exams while in high school:

  1. Advanced Placement (AP) classes and exams provide the opportunity for high school students to take college-level classes at their high school and an exam at the end of the school year. Many colleges will accept AP credits as placement and/or college credit. Most will accept a passing grade of 3, but some universities may require a score of 4 or 5 to earn college credit. (AP exam scores range from 1-5.)
  2. College Level Examination Program (CLEP) tests also offer the opportunity to earn college credit by passing an exam. However, instead of taking a class, you must study on your own and schedule an exam at a testing center when you’re ready. CLEP exams receive a score between 20 and 80. A score of 50 is typically the passing score to obtain college credit, but each university sets its own requirement. It is important to note that while many colleges accept CLEP credits, some top schools do not accept CLEP credits.
  3. Dual enrollment classes allow high school students to take college courses at a local college or university and earn both high school and college credit. You must be a high school junior or senior to qualify for the program. Dual enrollment credits are widely transferable.

Cost of Exams and Potential Savings

AP exams cost $94, CLEP tests cost $85 plus an additional administrative fee while dual enrollment programs pay for tuition, fees and books. According to the College Board, the average cost of a 3-credit class at a four-year college ranges from $942 to $3,243, meaning for each 3-credit class you test out of, you save hundreds—potentially thousands–of dollars!

Additionally, earning college credit in high school can enable you to finish college in less than four years. Just make sure that when you’re choosing a college, you pay attention to whether or not the schools accept AP and/or CLEP exam scores as credit.

Don’t Make These Mortgage Refinancing Mistakes

Don’t Make These Mortgage Refinancing Mistakes

With 30-year fixed rate mortgages approaching historical lows of 3%, you may be thinking about refinancing an existing mortgage. But you better read the fine print before signing on the dotted line to avoid paying too much money. Here are some common mistakes homeowners make when refinancing their mortgage.

  • Not shopping around. When looking to refinance a mortgage, many homeowners simply check a couple advertised rates and pick the lowest one. But there are many factors affecting the total cost of refinancing, so it pays to carefully look at not just rates but also terms and fees offered by different lenders. Remember that a mortgage with a lower rate and higher closing costs from one lender can ultimately cost more overall than a mortgage with a higher rate but lower closing costs from another lender.
  • Saying yes to current mortgage loan forbearance. Loan forbearance occurs when your current lender allows you to delay making a payment or allows you to lower your payments. This is a common offer during the current pandemic. If you are considering refinancing in the future, think twice before taking advantage of this offer. Accepting a bank’s offer to skip a couple payments, even during a pandemic, may signal cash flow problems that could negatively affect your mortgage refinancing options.
  • Not improving your credit score. The willingness of banks to lend you money at favorable rates is often contingent on your credit score. You must therefore know your current score and actively work to improve it. So don’t take out a new loan or credit card in the months leading up to refinancing. Also pay your bills on time and never use more than 15% to 20% of your available credit line on credit cards. By doing this you can vastly improve your interest rates and related closing fees.
  • Not looking over the good faith estimate. Origination fees, points, credit reports and other fees are all included with closing costs when refinancing a mortgage. These fees aren’t finalized until you receive a good faith estimate (GFE). Any changes you notice to fees on the GFE compared to what you were originally told is a red flag. Compare the final refinancing document you’re about to sign with the rates and fees originally presented to you. Challenge any increases.

By being aware of refinancing pitfalls, you can actively eliminate any surprises and create a situation where multiple lenders are fighting for the right to lend you funds.

How Stay-at-Home Orders Change Money Habits

How Stay-at-Home Orders Change Money Habits

The most fruitful periods of growth often happen when they are the least expected. Teachers and parents call them teachable moments. By reflecting on how you handle the situation, you can learn a lot about yourself. The disruption caused by this year’s pandemic is a massive teachable moment for all of us regarding money. Here are three ways you can take advantage of our recent stay-at-home orders to improve your spending and saving habits.

Take a different approach to tracking your spending. No matter who you are, your spending habits have changed during the pandemic. For example, more money is being spent at the grocery store and less on eating out and entertainment. And if you own a home, odds are you’re investing more in your house projects than you have in the past.

By taking away the ability to spend on things we would normally purchase, stay-at-home orders offer the opportunity to learn about the things that bring us joy. Look at your purchases over the last month and note which ones were worth the money. Then think about the things you miss the most. Maybe it’s going out to eat with friends or attending a concert or a sporting event. This exercise will give you a snapshot of what type of spending is the most satisfying for you and will help your decision making in the future.

Save, save, and save some more. If you learn one thing from this pandemic, it’s that nothing is certain. Circumstances can change in an instant and even the best plans can be tossed to the side at any moment. If you are fortunate enough to have consistent income, now is the time to start building your emergency and retirement funds. Instead of diverting funds to your entertainment budget, put it in savings. You never know when the next income-altering event will arise, so stuff that financial cushion while you have the chance.

Create a habit of giving. With unemployment rates in some places as high as we’ve seen since the Great Depression, there are plenty of opportunities to help those in need. If you have some extra cash, now is a great time to increase your giving. Beyond the positive impact to others and your community, studies show that giving can make you feel happier, provide greater life satisfaction, and even activate reward centers in the brain (according to the University of Oregon). On top of all that, you may be able to deduct your contributions on your taxes — just make sure to give to qualified 501(c)(3) charities.

Help! My Stimulus Payment is Wrong or Missing!

Help! My Stimulus Payment is Wrong or Missing!

Millions of Americans already received their economic impact payment. But what if you’re still waiting or your payment was for an incorrect amount?

Here are some common scenarios why you may not have received your payment, or the payment you did receive was for an incorrect amount, and what you can do.

  • Your payment was sent to a closed bank account. If you didn’t update your banking information or mailing address before your payment was processed, your money will probably end up in the wrong location.

    What you can do: You probably must wait. If your bank account on file with the IRS is closed or no longer active, the bank will reject the stimulus payment deposit and you will be issued a physical check to the address the IRS has on file for you.
  • Your check was sent to a wrong address. The IRS will send stimulus checks to the mailing address listed on your most recently-filed tax return. The IRS will also mail a letter with information about how and where the stimulus payment was made, but this letter will go to the most recent address on file.

    What you can do: Change your address on file with the IRS by filing Form 8822. While it won’t solve your immediate problem, your change will correct future issues. In the meantime, keep tracking the status of your payment by visiting the website Get My Payment. You can also try and contact the new people who live at your old address.
  • You didn’t get paid for your dependents or you think your check amount is incorrect. You are certain that you should have received a full $500 payment for each qualifying dependent and the payment was either not received or was for an incorrect amount.

    What you can do: If you did not get the full amount you think you should have received, you will be able to claim the additional amount when you file your 2020 tax return.
  • You received a check for a deceased relative. With more than 300 million people living in the U.S., it probably shouldn’t be a surprise that some of the stimulus checks were mailed to deceased individuals. Unfortunately for living family members, you can’t keep this money.

    What you need to do: You should open the check, write VOID on the check and then return it to the IRS. If the payment was via direct deposit or a check received from the IRS was already cashed, you should write a personal check to the IRS to return the money.

Receiving the wrong amount of money in your stimulus check or not receiving a check at all can be very frustrating. But be reassured the IRS is doing everything it can to help you get the correct amount of money that you deserve.

More information: If you have other questions or concerns, the IRS has a question and answer resource. Click here to read through the IRS Q&A.

Build a Fortress Defense for PPP Loan Forgiveness

Build a Fortress Defense for PPP Loan Forgiveness

More than 70% of small businesses in America now have loan proceeds from the Paycheck Protection Program (PPP) to help retain employees during the current pandemic. The entire amount of a PPP loan is eligible to be forgiven if the funds are used for qualified expenses. Recent legislation liberalizes the terms of loan forgiveness for funds used for payroll, utilities and rent. It is now based on a 24-week period, not just eight weeks.

But how can you best position your company to fully benefit from PPP loan forgiveness? Here are five tips to help meet the challenge.

  • Restore your staff. If possible, restore the number of full-time equivalent (FTE) employees to previous levels by the safe-harbor due date of December 31 (extended from June 30). Bring back furloughed FTEs as soon as you can. Of course, this should fit into your overall business plan. If an employee does not return, document the refusal. All these actions will help when the forgiveness formula is applied to your loan.
  • Pile on payroll costs. Run payroll and other remaining qualified expenses—including mortgage interest, rent and utilities—on the last day of the 24-week period. This will enable your business to maximize the amount of loan forgiveness allowed under the calculation.
  • Reward employees. Consider paying out reasonable incentive amounts to maximize the forgiveness of payroll costs. The bonuses can even go to family members like your spouse or children. But remember that you can only count up to $100,000 of wages per person, pro-rated for the covered year, and you must be able to defend these payments as reasonable.
  • Use the simplified application form. There are two loan forgiveness forms – the regular form (Form 3508) and a simplified version called Form 3508EZ. Review both forms before deciding which one is right for your situation. For instance, there are fewer calculations on the simplified form with less documentation required. To qualify for the simplified form, you must meet at least one of these requirements:
    • You’re self-employed and have no other employees.
    • You didn’t reduce employee hours or reduce their wages and salaries by more than 25%.
    • You lost business due to health directives relating to COVID-19 and didn’t reduce employee wages and salaries by more than 25%.
  • Document everything. Once you receive PPP loan funds, keep supporting documentation on everything related to the loan. Document when you receive the loan, each time you spend part of the loan and accrued interest expense on the loan. Also keep copies of receipts and invoices to document all loan expenditures, including bank account statements and journal entries.