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 If your bank account on file with the IRS is closed or no longer active, the bank will reject the stimulus payment deposit and you will be issued a physical check to the address the IRS has on file for you.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 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.
It suddenly just got a whole lot more difficult to buy a home
The banking sector is the latest industry to dramatically change how it operates in response to the current economic environment. The most visible change for consumers are new requirements for taking out a mortgage.
Here are some tips for working with banks and other lending institutions in the midst of tighter lending requirements and a heightened awareness of staying healthy.
Save more for a mortgage downpayment. New requirements for taking out a mortgage are requiring borrowers to put down at least 20% and have a credit score of 700 or better. Unfortunately, the average credit score of U.S. citizens under the age of 50 is below 700. The short-term reality is that you may need to save for a bigger downpayment and actively manage your credit before getting your dream home.
Take advantage of your bank’s mobile app. Social distancing is changing the way we interact in public and banking is no exception. Traditional bank tellers, drive through options, and in some cases entire branches, are being replaced with digital banking options and mobile deposits. This trend will surely accelerate in the aftermath of COVID-19. For the branches that remain open, visiting will likely be more restrictive. Smaller capacity banking spaces and appointments might be required to help banks control the flow of traffic.
Use digital payments for your purchases. While cash might still be king in the U.S. economy, consider using “germ-free” digital payments as retailers are steering customers toward electronic transactions. With businesses needing to adapt to new spending habits, innovation is going to steer towards digital payment technologies and make paying with cash more difficult in the future.
Look for lending deals. During these uncertain times, banks will be putting more effort into connecting with their customers. Bank leaders are making it a priority to personalize the banking experience with proactive marketing campaigns. Be on the lookout for special deals offered by lending institutions to help keep you as a customer.
Many Americans have been focused on their own finances over the past several months. But don’t neglect helping those closest to you with their finances as well, especially aging parents. Here are some questions to ask your parents to help them sort through their financial picture.
Have you decided when you’ll start taking Social Security benefits? If your parents have not started taking Social Security, a discussion in this area will help both of you. Generally, Baby Boomers can receive their full amount of benefits at age 66, but benefits increase gradually if they wait longer, reaching the peak at age 70. Conversely, if your parents intend to retire early, they may wish to start receiving reduced benefits as soon as age 62. To add more complexity, a spouse can take retirement benefits from their partner’s work history. Often a rule of thumb is if you expect to live past 80, consider delaying when you first receive benefits, if you can afford to do so.
Do you have a durable power of attorney? If you need to act on behalf of your parents regarding financial matters, you will need a power of attorney. Without this document in place, you’ll have to go to court to get guardianship of your parents in order to access their financial accounts.
Is there an executor? Who is responsible for going through everything when necessary? You don’t really need to know who it is, just that there is someone in place with a potential backup executor if the primary executor is unwilling or unable to help.
Where do you keep financial records? Does someone, other than your parents, know where financial documents and information are kept? This includes bank account numbers along with usernames and passwords for websites.
Who are key advisors? The executor will need the names and contact information for each member on your parents’ team of trusted advisors. Ideally your parents have introduced their executor to each of the members of their team.
How are you planning to pay for long-term care? One of the main financial concerns is the possibility of paying exorbitant amounts for long-term care in a nursing home or with stay-at-home assistance that will drain all your parents’ assets. Traditionally, this was handled by long-term care insurance to absorb at least some of the cost. Unfortunately, these policies are now very expensive. But there are other ideas that can help, including certain tax advantaged insurance policies and establishing a trust to shield assets from nursing home costs (subject to certain restrictions for Medicaid assistance).
Do trusts need to be created or updated? Although there are numerous types of trusts, each with a various purpose, your parents may use a trust to preserve assets for their heirs. They are also used to avoid probate. An irrevocable trust can fully protect assets, but your parents must give up all control over their assets. In contrast, a revocable trust can be modified (where your parents can still change beneficiaries), but offers less protection.
Remember, your goal is not to pry into your parents’ finances, but to help ensure a plan is in place. And as an added benefit, many of the questions outlined here are great to apply to your own situation!
Numerous new laws provide economic relief to individuals and businesses hardest hit by this year’s pandemic. This much-needed financial assistance, however, comes with a few strings attached.
Here are three potential surprises if you use the available economic relief packages:
Getting a tax bill for unemployment benefits. While the $1,200 economic impact payments most Americans received does not have to be reported as taxable income on your 2020 tax return, there is currently no such luck with unemployment benefits. In addition to paying federal taxes on your unemployment compensation, more than half of states also impose a tax on unemployment benefits.
What you need to do: See if your unemployment compensation check withholds a portion of your pay for taxes. Even if your check does have withholding for income tax purposes, the withholding amount may not be enough. If possible, talk to your state unemployment office and try to get withholding amounts revised.
Paying estimated tax payments. If you normally receive a paycheck from your employer, you may have never needed to write a check to the IRS to pay estimated future taxes. Your employer withholds your taxes from your paychecks and sends it to the IRS for you. If you’re collecting unemployment benefits, however, you may be required to pay tax on the unemployment benefits received during the first six months of 2020 by July 15, 2020.
What you need to do: Estimate the amount of tax you owe for all sources of income, then compare that number with the amount of money withheld from your income to pay these taxes. If necessary, send in quarterly estimated tax payments to the U.S. Treasury and, in some cases, state revenue departments. This must be done each quarter with the next payment due July 15. You may need to send money in on September 15, 2020 and January 15, 2021 as well.
Reporting emergency distributions from retirement accounts: You may withdraw up to $100,000 in 2020 from various retirement accounts to help cover pandemic-related emergency expenses without incurring penalties. While you will not be required to pay an early withdrawal penalty, you will still be subject to income tax when filing your 2020 tax return.
What you need to do: If you plan to withdraw funds from your retirement account, reserve enough of the money to pay the tax! The amount you reserve depends on your potential tax situation so call for a tax review before taking money out of the account.
Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, you may be able to take money out of a qualified plan, like a 401(k), or an IRA, with favorable tax consequences. But should you do it? You might view withdrawing money from a retirement account as a last resort.
Background
Among other changes in the CARES Act relating to qualified plans and IRAs, a participant can withdraw up to $100,000 of funds without paying the usual 10% tax penalty on distributions before age 59½. Plus, you can take as long as three years to pay the resulting tax bill, spread out evenly over the three years. If you repay the full amount within three years, you owe no tax.
To qualify for this program, you or your spouse must be diagnosed with COVID-19 or experience adverse financial consequences due to the virus such as being laid off, having work hours reduced or being quarantined or furloughed.
What are the pitfalls?
There are several reasons why you may want to avoid taking money out of your retirement accounts unless it’s an absolute emergency:
You’re diluting your retirement savings. Although the money comes in handy now, you’re chipping away at your nest egg and forfeiting growth. For example, if you withdraw the maximum amount of $100,000 that would have earned 6% annually tax-deferred for ten years, the value would have been $179,000.
It may be bad timing. Experts say it is difficult to time the markets in the current volatile environment. If you sell some holdings right now, you may be locking in losses that would miss the recovery in the next few months or years.
You still owe income tax. Income tax is due unless you replace the full amount within three years. Also, depending on your situation, you could end up paying tax at higher rates than you would in your retirement years.
Better options might exist. Arranging a hardship loan from your 401(k) might be a better alternative for your situation. You avoid the taxable event of the withdrawal and you pay back yourself with interest. Other options include refinancing a mortgage with lower interest rates, taking advantage of payment relief from mortgage, rent or student loan payments or deferred credit card billing.
While it is an option, retirement plan withdrawals are not always the best choice. Think through all scenarios before withdrawing from retirement funds to cover emergency expenses.
