Taxpayers have many questions about Economic Impact Payments (EIPs). The IRS has answered some of them on its website. For example, is an EIP considered taxable income? The IRS says it's not and taxpayers won't owe tax on it. EIPs are part of the tax relief intended to help mitigate the effects of the coronavirus (COVID-19) crisis. The federal government is making EIPs of up to $1,200 to individuals under a certain income threshold. Married couples filing jointly, who fall under an income threshold, can receive up to $2,400. There are additional $500 payments per qualifying child.
There are a number of reasons why you may receive an EIP for less than you expected. For example, your child may not be eligible for the extra $500 (see below). In addition, an individual may receive less or no EIP due to delinquent child support or garnishments by creditors. For more details: https://bit.ly/3fDWJCz .
Does someone who died qualify for an EIP? The IRS says no. The entire EIP should be returned unless it was made to joint filers and there's a surviving spouse. In that case, only the deceased spouse's portion of the EIP should be returned.
How does the IRS define "qualifying child" in relation to EIPs? Under the Coronavirus Aid, Relief and Economic Act, eligible taxpayers can receive an additional $500 per qualifying child. According to the IRS, a qualifying child is: your child, stepchild, eligible foster child, sibling, half-sibling, step-sibling, or descendant (such as your grandchild, niece, or nephew).
Also, you must claim the child as a dependent on your tax return; the child must be under age 17 at the end of 2019; must be a U.S. citizen, U.S. national, or U.S. resident alien; and have a valid Social Security number or adoption taxpayer ID number. Here's more information: http://bit.ly/2Sk3OOK
The IRS provides tax relief in Section 125 cafeteria plans. To address unanticipated health care expenses due to the COVID-19 pandemic, the IRS has issued guidance to increase flexibility in employees' cafeteria plans. The IRS has added to the situations in which a cafeteria plan may allow employees to make mid-year elections, allowed more flexibility with respect to health flexible spending accounts (FSAs) and dependent care assistance programs under a cafeteria plan, and provided several rules with respect to high deductible health plans (HDHPs).
Specifically, regarding health FSAs, the IRS increased for inflation the $500 permitted carryover amount to $550. For more information about Notice 2020-29: https://bit.ly/2zyon3q
The Paycheck Protection Program is available to many small businesses affected by the COVID-19. Businesses can qualify for 100% loan forgiveness for amounts used for payroll costs, mortgage interest, rent and utility payments during the eight weeks after receipt of the loan, as long as no more than 25% of the loan proceeds are used for nonpayroll costs.
In Notice 2020-32, the IRS has clarified that deductions for income tax purposes aren't allowed for expenses that are otherwise deductible if the payment of the expense results in forgiveness of a covered loan. The Notice states that "this treatment prevents a double tax benefit." The IRS also stated that the forgiven loan funds aren't included in a business's gross income.
The Social Security "wage base" is projected to rise to $141,900 in 2021. So says the Social Security Administration Office of the Chief Actuary (OCA). The 2020 level is $137,700. Social Security limits the amount of earnings subject to taxation for a given year. The wage base is the maximum amount of earnings that are subject to Social Security tax each year. Both the employer and the employee pay Social Security tax, at a rate of 6.2% of the employee's compensation, for a total of 12.4%. The self-employed pay both the employer and employee portions, also for a total of 12.4%. While the OCA has projected next year's amount, the official figure will be announced by the Social Security Administration in October.