COVID-19/Coronavirus Tax Relief News

IRS Sends Large Tax Bills for 2021 Unemployment Benefits

Large Tax bills

Due to the COVID-19 pandemic, millions of US workers lost their jobs. While some were able to return to work in 2021, approximately 25 million people received unemployment benefits and didn’t withhold taxes. The IRS is now looking to collect back taxes for the $325 billion in total benefits and mailed millions of large tax bills this season.

Withholding Unemployment Tax

Most states and the federal government consider unemployment benefits taxable income. You should withhold federal taxes on your unemployment in order to avoid a bill the following tax season.

In 2020, there was a tax break that allowed millions of Americans to owe a lesser amount of tax, or not owe tax at all. However, as the IRS has steadily made efforts to return to normal enforcement activity since 2021, there was no such tax break this year.

What happens if you don’t pay taxes on unemployment benefits?

As with any tax liability, you will receive a tax bill from the IRS via mail. Should you not reach out to the IRS or pay the bill by the end of the tax season, you could face enforcement consequences such as a levy or lien, accrue interest, and lose eligibility for a refund after filing a return.

What to do if you owe taxes for unemployment benefits

If you owe taxes on your unemployment benefits and can’t afford to pay it back in full, you have a couple of options. The first option, if your tax bill isn’t too high by your means, you can contact the IRS to set up a payment plan. This option allows you to negotiate how much you will pay monthly until the bill is paid.

Should you find that your liability is too high for you to pay back or you’re facing hardship that doesn’t allow you to afford your payment options, consider seeking professional assistance such as Optima Tax Relief.

At Optima, we assist clients who owe state and federal taxes, including individual, joint filers, and business filers. Give us a call at (800) 536-0734 for a free consultation today.

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IRS Backlog to Clear Up by End of 2022

irs backlog

At the start of the COVID-19 pandemic, the IRS was forced to close its doors. Since reopening, there has been an extensive backlog of tax returns that the organization couldn’t seem to catch up on. Many American taxpayers have been waiting for refunds that are a year or more behind. In recent weeks, Commissioner Charles Rettig stated that the IRS backlog is due to clear up by the end of 2022.

What has changed for the IRS?

In addition to the complications of being a business in the midst of a pandemic, being understaffed has also immensely affected the turn-around for tax returns. This month, the IRS has accelerated their recruiting process in order to reach a goal of hiring 10,000 new employees. The hiring push is expected to cut tens of millions of tax returns in the backlog.

What does a clear backlog mean for 2023 filing season?

Commissioner Rettig said, “As of today, barring any unforeseen circumstances, if the world stays as it is today, we will be what we call ‘healthy’ by the end of the calendar year 2022, and enter the 2023 filing season with normal inventories.”

This means that next year, the IRS will likely resume usual enforcement and collection activity. With a lack of backlogged returns and a mostly healthy nation, in addition to thousands of new hires, the IRS can operate normally- if not better than the last two years.

What does IRS enforcement look like?

When you have a penalty or fall behind in paying your taxes, you should expect a notice from the IRS. The notice is the first step in communicating a liability. From there, your penalty can accrue interest daily until paid.

The IRS is also known for applying liens and levies, taking legal possession of your assets. Ideally, you want to contact them before this point to gain compliance and prevent worst-case scenarios.\

What if you owe back taxes currently?

At Optima, we help clients that are facing tax debt in their journey to a resolution. Give us a call at (800)536-0734 for a free consultation today.

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Taking a CARES Act Retirement Withdrawal could Lead to a Tax Liability

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

Tax Liability

With taxpayers still dealing with the financial fallout from the COVID-19 outbreak, many are falling on hard times and needing to get cash quickly. The Coronavirus Aid, Relief and Economic Security Act, also known as the CARES Act, has a provision that can aid Americans that are financially strapped.

The CARES Act makes it easier for taxpayers to withdraw funds from their retirement accounts like 401(k)s and traditional Individual Retirement Accounts (IRAs). The temporary changes made to retirement accounts allows taxpayers to make early withdrawals without worrying about tax penalties as well as relaxed rules on loans you take out from your retirement.

What is my retirement contribution limit?

In most cases, taxpayers are able to deduct up to $6,000 for a traditional IRA. If you are 50 years or older, you are able to deduct $7,000. If you have a different retirement account, the amount will differ based on your age and type of plan you have chosen. Your contribution amount may also be limited based on the amount of income you earn.

Here is everything you need to know about the CARES Act.

Eligibility on early withdrawals from retirement accounts with the CARES Act

Some tax-advantaged retirement account holders may not qualify for some of the CARES Act’s relaxed early distribution and loan provisions. Legislation restricts relief to certain participants with a valid COVID-19 related reason in order to receive early access to funds. This includes:

·         If you have been diagnosed with COVID-19.

·         If your spouse or dependent is diagnosed with COVID-19.

·         Experiencing a layoff, furlough, reduction in hours, or inability to work due to COVID-19.

·         Lack of childcare because of COVID-19.

·         Closing or reducing hours of a business owned or operated by an individual or spouse due to COVID-19.

Additional rules for early distribution

Eligible participants in tax-advantaged retirement plans typically have 401(k)s, 403(b)s,457s, and Traditional IRAs. This includes taking an early distribution of up to $100,000 during the calendar year 2020 without having to pay the 10% penalty tax that is typically imposed on most retirement account withdrawals before an account owner is 59 ½.

The act also suspends the mandatory 20% tax withholding requirement that is typically applied to early distributions from a 401(k) or other workplace retirement plan. The CARES Act allows taxpayers up to three years to redeposit the withdrawn money back into their retirement account or pay it all back in 2020 if your income is much lower this year.

Can contributing to an IRA change my tax bracket?

Contributing to your retirement plan can change the tax bracket you are typically in, if your income is near a bracket level. It is important to know that contributing to your plan does not have as big of an effect on your income bracket as you may think because each level of your income is taxed at the income tax rate for that bracket.

If you need tax help, contact us for a free consultation.

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Dive into Pending, Delayed, & Missing Tax Returns

pending return delay

From the start, the COVID-19 pandemic has been the biggest setback for the IRS. Millions of Americans have been waiting for tax returns and refunds from previous years, causing even more delay for 2022. If your returns from last year are still pending, then your return will be delayed this year as well.

How to avoid delayed or rejected tax returns

Electronic filing of your taxes is a great way to lessen the likelihood of delays. You can also validate your return with last year’s adjusted gross income so it doesn’t get rejected.

What to do if last year’s tax return is pending

National Taxpayer Advocate Erin Collins recommends entering $0 for your 2020 adjusted gross income when you file online.

If you collected the advanced child tax credit or your stimulus via the non-filer tool in 2021, the IRS recommends entering $1 for last year’s adjusted gross income.

There’s a possibility of the IRS rejecting your electronic return if you do not follow these steps. A tax software would typically send you a rejection email if your return shows conflicts with your adjusted gross income.

Missing tax return notice CP80

Receiving a CP80, or notice of a missing tax return could also leave your return in a pending status. If you received this notice and your return is still pending, you should also enter $0 for your 2020 adjusted gross income.

There is a chance that the IRS processed last year’s return after sending the notice. In which case, your adjusted gross income of $0 will be rejected. Should this happen, you can refile your 2021 return with the correct adjusted gross income.

How to check the status of your 2020 return

It helps to have a transcript to check the status of your 2020 return if you aren’t sure.

If you have a delinquent tax liability and need assistance with your 2020 return, call Optima for a free consultation at (800)536-0734.

You can download the Optima® TAX APP and file an extension for free if you need more time to file your taxes.

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What You Should Know About Unemployment Taxes

unemployment taxes

Unemployment benefits saved a lot of American households this past year. Furloughs and lay-offs were at an all-time high due to the pandemic, leaving many without a lot of options.

However, unemployment comes with taxes that few people understand, or know about. Whether you’re considering applying for unemployment, or have already started utilizing these benefits, you should know how this affects your taxes.

Unemployment Taxes

Social Security and Medicare taxes are not something you have to pay for while receiving unemployment benefits. The taxes that are required for you to pay are federal and state taxes (depending on the jurisdiction). Some states wave income taxes for unemployment—states such as California and New Jersey for example. If your state’s benefits program is not tax-exempt like Florida and Nevada, you should opt to withhold taxes from each check.

Withholding Unemployment Taxes

Withholding is presented as an option when completing weekly or bi-weekly check-ins for your unemployment benefits. By withholding, you’re paying taxes upfront, rather than letting them accumulate throughout the year. If you choose not to withhold, then you’ll be expected to pay back the IRS when you file your return.

The flat rate for federal tax withheld is 10% of the benefits. This amount certainly adds up to a sizeable sum by the end of the year if it’s not paid weekly. If the taxes go unpaid, you could be at risk of liability.

To avoid a liability, you can send quarterly estimated tax payments to the IRS, fill out a W-4V with your unemployment office, or if you started working again you may qualify for EITC— Earned Income Tax Credit. Your EITC amount could reduce or cover the amount you owe in unemployment taxes.

What to do if you have a liability

If you’re expecting to owe more than you can pay at the time that you file your return, there are options available to you. You can contact the IRS to set up an installment plan, which allows you to make monthly payments until the balance is paid in full.

You can also contact Optima today for a free consultation, should you find yourself owing a large sum to the IRS. Give us a call at 800-536-0734 to speak with one of our tax associates now!

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First-Time Homebuyers may receive up to $15,000

President Biden has proposed a $15,000 tax credit for first-time homebuyers to help offset the costs of buying a home. The details of the proposal from either party have yet to been made official and would most likely be worked out in a bill passed by congress.

The proposal would help millions of families buy their first home by creating a new refundable and advanceable tax credit of up to $15,000. The new First Down Payment Tax Credit would assist families offset the costs of home buying and help millions of families buy property for the first time.

The first-time homebuyer tax credit is very similar to the $7,500 tax credit that was created by the Housing and Economic Recovery Act signed by President George W. Bush back in July of 2008. The credit was previously increased to $8,000 the following year in a bill that was signed by President Barak Obama. The program expired back in 2010.

The current proposed plan differs from the prior tax credits in the way that it could be redeemed. Previous credits were claimed when buyers filed their income taxes the following year. Biden’s proposal would create a tax credit that could be used during the time of a home purchase.

We will continue to update you with new information as this story develops.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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Retirement Account Owners Able to Make Early Withdrawals for Covid-19 Costs

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

Retirement Plans
  • The Relief and Economic Security Act allows taxpayers to pull from their retirement account and utilize the money specifically for coronavirus emergency expenses.
  • Taxpayers are required to put withdrawn funds back into your account within three years or face penalties.
  • If you withdraw from your retirement and are unable to pay back the amount within three years, it is recommended that you consult a tax professional.

Because of all the uncertainty our nation is currently facing, it may leave some people wondering how they’re going to pay their bills and how they will cope financially after this crisis is over. The government has just announced that in addition to the stimulus package, they will also be providing additional relief by allowing taxpayers to pull from their retirement accounts for Covid-19 emergency related expenses without penalty. It is important to understand the stipulations from pulling out of your retirement account and the possible repercussions you may face in the future for doing so. 

The Relief and Economic Security Act allows taxpayers to pull from their retirement account and utilize the money specifically for coronavirus emergency expenses. Retirement account owners will be able to withdraw up to $100,000 from their accounts and will be able to extend their repayment period for existing loans without facing any penalties.  

Although you are able to take out money from your retirement account, the government does require you to put withdrawn funds back into your account within three years. Should you not put the funds back after this period of time, the IRS will place penalties against you in addition to possibly owing a tax balance the next time you file your taxes. 

If you need to withdraw from your retirement account and know that there is a possibility that you may not be able to place the funds back within the three year period, it is recommended that you consult with a tax professional to see what your options moving forward and how you can possibly minimize your balance or see what payment plan options are available to you. 

If you need tax help, contact us for a free consultation. 

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