Tag: taxreliefprogram

College Funding Changes In The Pandemic Relief Bill

There are several student financial aid provisions in the pandemic relief package that was included in the Consolidated Appropriations Act of 2021 that passed the House and Senate on Monday, December 21, 2020.

Student Loan Relief

Student loan borrowers are disappointed that the legislation did not include an extension to the student loan payment pause and interest waiver, nor did it provide any student loan forgiveness.

The payment pause and interest waiver is set to expire on January 31, 2021. President-elect Joe Biden will be able to extend it further after he takes office on January 20, 2021. Several possible extension dates have been floated, including April 1, April 30 and September 30, but Joe Biden has not yet said anything specific about the extension, just that it is needed.

Nevertheless, there are some changes in the legislation that affect student loan borrowers. In particular, the tax-free status of employer-paid student loan repayment assistance programs (LRAPs), which was set to expired on December 31, 2020, has been extended for five years through the end of 2025. Such LRAPs will be exempt from income and FICA taxes for both the employee and the employer.

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SULA, a complicated set of limits on subsidized Federal Direct Stafford loans, has been repealed. SULA mostly affected students who transferred from a 4-year college to a 2-year college.

In addition, there have been a few changes concerning the U.S. Department of Education’s Next Generation Processing and Servicing Environment (NextGen) for federal student loans.

  • New student loan borrower accounts must be allocated to loan servicers based on their past performance and servicing capacity.
  • Borrower accounts must be reallocated from servicers for “recurring non-compliance with FSA guidelines, contractual requirements, and applicable laws, including for failure to sufficiently inform borrowers of available repayment options.” Applicable laws include consumer protection laws.
  • NextGen must allow for multiple student loan servicers that contract directly with the U.S. Department of Education.
  • NextGen must incentivize more support to borrowers at risk of delinquency or default.
  • Borrowers must be allowed to choose their loan servicer when they consolidate their federal loans.
  • The U.S. Department of Education must improve transparency through expanded publication of aggregate data concerning student loan servicer performance.

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Changes in College Tuition Tax Breaks

The legislation changes the income phaseouts for the Lifetime Learning Tax Credit (LLTC) to be the same as the income phaseouts for the American Opportunity Tax Credit (AOTC), starting with tax years that begin after December 31, 2020.

The Lifetime Learning Tax Credit will start phasing out at $80,000 for single filers and $160,000 for taxpayers who file as married filing jointly. The tax credit is fully phased out at $90,000 (single) and $180,000 (married filing jointly). Married taxpayers who file separate returns are not eligible.

For comparison, the 2020 income phaseouts for the LLTC were $59,000 to $68,000 (single) and $118,000 to $136,000 (married filing jointly).

The new income phaseouts will not be adjusted for inflation.

In addition, the legislation repeals the Tuition and Fees Deduction, effective with tax years that begin in 2021. This is a permanent repeal, so the Tuition and Fees Deduction will not be resurrected by the next tax extenders bill.

New Funding for Higher Education Emergency Relief Fund

The $81.88 billion for the Education Stabilization Fund includes

  • $54.3 billion for the Elementary and Secondary School Emergency Relief Fund
  • $22.7 billion for the Higher Education Emergency Relief Fund (HEERF)
  • $4.05 billion for the Governor’s Emergency Education Relief Fund, of which $2.75 billion has been earmarked for Emergency Assistance to Non-Public Schools

The Higher Education Emergency Relief Fund previously received $16 billion as part of the CARES Act.

The allocation formula for the HEERF funding is more complicated than the one in the CARES Act, but the allowable uses are similar. Public and private non-profit colleges are required to use at least half of the money for financial aid grants to students. Private for-profit colleges are required to use all of the money for financial aid grants to students. Colleges must provide at least the same amount of emergency financial aid grants to students as they did under the CARES Act provisions, even if their total allocation is lower.

The emergency financial aid grants to students can be used for any element of the student’s cost of attendance or for emergency costs related to the pandemic, such as “tuition, food, housing, health care (including mental health care), or child care.”

The grants must be prioritized to students with exception financial need, such as Pell Grant recipients.

The emergency financial aid grants to students are tax-free.

Most College Students Remain Ineligible for Stimulus Checks

Most college students will remain ineligible for the recovery rebate checks, also known as the stimulus checks.

The legislation includes the same restriction that limits the $600 per qualifying child to children age 16 and younger. Only 0.1% of undergraduate students are age 16 or younger.

College students who are under age 24 are also ineligible, because they can be claimed as a dependent on someone else’s federal income tax return. The remain ineligible even if they are not claimed on someone else’s tax return.

A college student might qualify if they are married and file a joint return with their spouse or if they provide more than half of their own support. About 15% of undergraduate students are married. College students who are 24 years old or older may also qualify. More than 40% of undergraduate students are 24 years old or older.

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College students can still claim the $1,200 stimulus checks from the CARES Act in addition to the new $600 stimulus checks, if they are eligible.

Increase in the Maximum Pell Grant

The maximum Federal Pell Grant has been increased to $6,495 for the 2021-2022 academic year.

Eligibility criteria will be pegged to a multiple of the poverty line starting with the 2023-2024 academic year. Students will be eligible for the maximum Pell Grant if they and their parents/spouse, as applicable, are not required to file a federal income tax return or if their adjusted gross income (AGI) is less than 175% to 225% of the poverty line. The higher threshold is reserved for households involving a single parent.

FAFSA Simplification

The legislation simplifies the Free Application for Federal Student Aid (FAFSA) starting with the 2023-2024 academic year. The new FAFSA reduces the number of questions on the form by two-thirds, from 108 questions to about three dozen questions. Follow me on Twitter. Check out my website or some of my other work here. 

Mark Kantrowitz

Mark Kantrowitz

I am Publisher of PrivateStudentLoans.guru, a free web site about borrowing to pay for college. I am an expert on student financial aid, the FAFSA, scholarships, 529 plans, education tax benefits and student loans. I have been quoted in more than 10,000 newspaper and magazine articles about college admissions and financial aid. I am the author of five bestselling books about paying for college and have seven patents. I serve on the editorial board of the Journal of Student Financial Aid, the editorial advisory board of Bottom Line/Personal, and am a member of the board of trustees of the Center for Excellence in Education. I have previously served as publisher of Savingforcollege.com, Cappex, Edvisors, Fastweb and FinAid. I have two Bachelor’s degrees in mathematics and philosophy from the Massachusetts Institute of Technology (MIT) and a Master’s degree in computer science from Carnegie Mellon University (CMU)

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University of California Television (UCTV)

How to pay for college is a pressing question for all applicants from the class of 2020. COVID-19 has caused financial uncertainty and many are having to rethink their plans. Jodi Okun, an expert in financial aid, joins Steven Mercer to talk about how the pandemic is impacting financial aid awards, what to do if your family’s financial situation has changed, and how to plan for the future in uncertain times. [Show ID: 35963] More from: STEAM Channel (https://www.uctv.tv/steam) UCTV is the broadcast and online media platform of the University of California, featuring programming from its ten campuses, three national labs and affiliated research institutions. UCTV explores a broad spectrum of subjects for a general audience, including science, health and medicine, public affairs, humanities, arts and music, business, education, and agriculture. Launched in January 2000, UCTV embraces the core missions of the University of California — teaching, research, and public service – by providing quality, in-depth television far beyond the campus borders to inquisitive viewers around the world. (https://www.uctv.tv)

Stimulus Check Qualification Rules Could Change With a Second Payment

Congress is scrambling to piece together another relief package before the end of the year that would, if some legislators have their say, include a second economic stimulus check for individuals and families who meet the requirements.

Sen. Bernie Sanders, an independent, and Sen. Josh Hawley, a Republican, are looking to modify a $908 billion plan with an amendment that would authorize a second check for up to $1,200. The unamended proposal doesn’t include another direct payment. If Sanders and Hawley’s amendment is successful, the new payment would likely follow the same outlines of the first stimulus check for speed and simplicity, but even minor changes could have a significant impact for millions.

Another new proposal, this time from the White House, would provide $600 apiece for each qualifying adult and child, Though it’s less likely we’ll see this proposal become law, if it did it would clearly affect how much money a household could get, by halving the share per qualifying adult and increasing it by $100 per eligible child dependent. 

Even if no stimulus check is approved in 2020, the discussions happening now could impact the stimulus check conversation in early 2021. There’s clearly enough support for a second round of aid before there are enough available doses of the COVID-19 vaccine to inoculate the US population.

Read on for more information about what may happen to stimulus eligibility now. We update this story often.

How the qualifications could change with a new bill

While many members of Congress agree on the need for more aid, they differ on the specifics, and the two sides continue to discuss who needs assistance and how much to spend. Based on proposals that’ve been on the table this fall, here’s what lawmakers could do (or have already done):

Update the definition of a dependent: The CARES Act capped eligible dependents at kids age 16 and younger. One proposal this summer expanded the definition to any dependent, child or adult, you could claim on federal taxes. That means families with older kids or older adults at home could potentially see $500 more in their check total per individual if that proposal is adopted.

Read more: Nobody can take your stimulus check away, right? Not quite

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If the definition of a dependent changes, your family could benefit. Angela Lang/CNET

Raise the amount of money per child dependent: One White House proposal from October would’ve kept the definition of a child dependent used in the CARES Act but increased the sum per individual to $1,000 on the final household check. (Based on that, here’s how to estimate your total stimulus money and here’s the IRS’ formula for families.)

The White House’s new Dec. 8 proposal would reportedly raise the sum for each qualifying child to $600, up from $500 in the CARES Act.

Stop seizing overdue child support: The Democrats this summer pushed to let a parent who owed child support receive a payment; the original CARES Act allowed the government to redirect payments to cover overdue support.

Send checks to people who are incarcerated: After months of back and forth, the IRS is sending checks to those who are incarcerated and eligible for a payment. A Republican plan this summer would’ve excluded the payments.

Include noncitizens: The CARES Act made a Social Security number a requirement for a payment. Other proposals would’ve expanded the eligibility to those with an ITIN instead of a Social Security number because they’re classified as a resident or nonresident alien. A Republican plan this summer would’ve excluded those with an ITIN.

Who could qualify for a second stimulus check

Qualifying groupLikely to be covered by the final bill
IndividualsAn AGI of less than $99,000 (Same as CARES)
Head of householdAn AGI of less than $146,500 (Same as CARES)
Couple filing jointlyAn AGI less than $198,000 (Same as CARES)
Dependents of any ageNo limit (HEALS proposal; up to 3 in Heroes)
US citizens living abroadYes, same as CARES
Citizens of US territoriesLikely, with payments handled by each territory’s tax authority (CARES)
SSDI and tax nonfilersLikely, but with an extra step to file (more below)
Uncertain statusCould be set by court ruling or bill
Incarcerated peopleExcluded under CARES through IRS interpretation, judge overturned
Undocumented immigrantsQualifying “alien residents” are currently included under CARES
Disqualified groupUnlikely to be covered by the final bill
Noncitizens who pay taxes (ITIN)Proposed in Heroes, unlikely to pass in Senate
Spouses, kids of ITIN filersExcluded under CARES, more below
People who owe child supportIncluded in Heroes proposal, but excluded under CARES

Would the income limits be similar with another check?

Under the CARES Act, here are the income limits based on your adjusted gross income for the previous year that would qualify you for a stimulus check, assuming you met all the other requirements. (More below for people who don’t normally file taxes.) With the amendment proposed by Sanders and Hawley on Dec. 10, the requirements guidelines would follow those set out in the CARES Act.

  • You’re a single tax filer and earn less than $99,000.
  • You file as the head of a household and earn under $146,500.
  • You file jointly with a spouse and earn less than $198,000 combined.

What role do my taxes play in how much I could get? What if I don’t file taxes? 

For most people, taxes and stimulus checks are tightly connected. For example, the most important factor in setting income limits is adjusted gross income, or AGI, which determines how much of the total amount you could receive, be it $600 or $1,200 for individuals and $1,200 or $2,400 for married couples (excluding children for now).

Our stimulus check calculator can show you how much money you could potentially expect from a second check, based on your most recent tax filing and a $1,200 per person cap. Read below for your eligibility if you don’t typically file taxes.

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How much stimulus money you could get depends on who you are. Angela Lang/CNET

What should retired and older adults know?

Many older adults, including retirees over age 65, received a first stimulus check under the CARES Act, and would likely be eligible for a second one. For older adults and retired people, factors like your tax filings, your AGI, your pension, if you’re part of the SSDI program (more below) and whether the IRS considers you a dependent would likely affect your chances of receiving a second payment. 

If I share custody or owe child support, how does that affect eligibility?

Due to a specific rule, if you and the other parent of your child dependent alternate years claiming your child on your tax return, you may both be entitled to receive $500 more in your first stimulus check, and in the second if that rule doesn’t change.If you owe child support, your stimulus money may be garnished for arrears (the amount you owe). https://playlist.megaphone.fm/?e=CBS4695642448&light=true

I haven’t submitted my federal tax return for at least two years. Can I still get money?

People who weren’t required to file a federal income tax return in 2018 or 2019 may still be eligible to receive the first stimulus check under the CARES Act. If that guideline doesn’t change for a second stimulus check, this group would qualify again. Here are reasons you might not have been required to file:

  • You’re over 24, you’re not claimed as a dependent and your income is less than $12,200.
  • You’re married filing jointly and together your income is less than $24,400.
  • You have no income.
  • You receive federal benefits, such as Supplemental Security Income or Social Security Disability Insurance. See below for more on SSDI.

With the first stimulus check, nonfilers needed to provide the IRS with some information before they could receive their payment. (If you still haven’t received a first check even though you were eligible, the IRS said you can claim it on your taxes in 2021.) This fall, the IRS attempted to contact 9 million Americans who may’ve fallen into this category but who haven’t requested their payment. Those in this group can claim their payment on next year’s taxes.

I’m part of the SSI or SSDI program. Am I eligible to get a stimulus check?

Those who are part of the SSI or SSDI program also qualify for a check under the CARES Act. Recipients wouldn’t receive their payments via their Direct Express card, which the government typically uses to distribute federal benefits, but through a non-Direct Express bank account or as a paper check. SSDI recipients can file next year to request a payment for themselves and dependents.

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For more, here’s what we know about the major proposals for another stimulus package. We also have information on unemployment insurance, what you can do if you’ve lost your job and what to know about evictions.

Coronavirus updates

First published on June 25, 2020 at 4:15 a.m. PT.BudgetingTaxesPoliticsPersonal Finance How To

By: Clifford Colby, Julie Snyder, Katie Conner

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Why You Should Keep Tax Records For More Than Three Years

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A Pennsylvania citizen, who will be identified here as “P,” has a bone to pick with the collections agency that handles taxes for his municipality. P says he duly paid his 2015 local income tax, but just a few weeks ago got a nasty notice calling him a delinquent and demanding immediate payment of more than $2,000 in taxes and penalties.

P asks: Isn’t there a three-year limit on tax audits? What am I supposed to do if my bank can’t locate a five-year-old cancelled check? Do I have to pay the taxes twice? Short answer: Yes. If you don’t have good records you can get nailed for taxes you don’t really owe. Three years of documents won’t cut it. Seven years is more like it. Some tax records should be kept on hand until you’re dead.

Barry Dolowich, a CPA in Monterey, California, is representing a Nevada citizen who just got a dunning notice from California’s notoriously aggressive Franchise Tax Board. What did this taxpayer do wrong? He inherited a house in California and sold it, at a loss, in 2015. He didn’t file a California income tax return for that year. The state wants him to fork over $30,000-plus on the supposition that the entire proceeds were profit.

David Caplan, a CPA in Lafayette Hill, Pennsylvania, is fighting for a taxpayer from whom the Internal Revenue Service wants to extract approximately $35,000. This client, now in her 80s, had a small business whose withholding taxes were handled by a payroll processor. It took the sleepy IRS a decade to figure out that the processor was embezzling money and forging powers of attorney in order to keep clients in the dark about delinquency notices. The crook is now in jail and evidently has scant assets. The former business owner paid the tax money once and may have to pay again.

There is indeed a three-year rule on tax audits, but it doesn’t provide the protection you think it does. Normally the IRS has three years from a return’s due date (or when you filed, if you got an extension) in which to challenge your numbers. Many states copy that rule; a handful, including California, stretch out the audit period to four years.

But there are exceptions. Three years becomes six if the tax collector can show that there is a “substantial understatement” of your liability. For the federal government, “substantial” means by 25% or more; state rules vary on this point.

The other exception is if no return was filed. On the theory that a nonfiler is akin to a fugitive bank robber, undeserving of having the clock run on a statute of limitations while he is in hiding, the three-year period does not start until the return comes in.

This presents a potential hazard for people who don’t retain yellowed records. A Pennsylvania township could in principle send out a notice declaring, “We were just going through some old punch cards and can’t find a record of your 1997 return. Please send in $2,000 plus 22 years of penalties.”

Matthew Melinson, a state and local tax partner in Grant Thornton’s Philadelphia office, says he hasn’t witnessed anything that egregious, but has seen states trying to collect ten years of tax from nonfilers. Given that records are now electronic, he says, you should keep returns for a long time—seven years, at least.

Herewith a nine-point guide to record retention:

1. Keep copies of income tax returns and proof of tax payments as long as you can.

2. Discard supporting documents (like receipts for business expenses and charitable donations) after seven years. That covers you for six years beyond your filing date.

3. Keep records of asset costs for seven years after you dispose of the asset, recommends Stephanie Pervez, who leads the private-clients practice at CohnReznick in New York City. If you bought a house in 1990, remodeled it in 2000, and sold it in 2019, you’d keep both sets of closing documents and the remodeler’s bill until 2026.

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4. Keep support for carryforward items (such as for capital losses) until seven years after using up the carryforward. Says David Klasing, an Irvine, California, attorney representing clients with big tax headaches: “A lot of times they won’t contest the original accrual of a net operating loss until you try to use it.”

5. Keep copies of gift tax returns forever. Your executor may have to attach them to an estate tax return, Pervez says.

6. Maximize the value of your health savings account by preserving both the assets and medical receipts for a long time. Instead of using the HSA to cover co-pays and other costs, you pay them out of your checking account and let the HSA grow. In retirement, you pull the money out, making the withdrawal tax-free by matching it to past medical costs, which can stretch back for decades. The strategy only works if you can retrieve the receipts.

7.  Consider filing a nonresident return, perhaps one showing a small amount of income, in states where you have some business connection. That starts the clock running on an audit period, and might protect you from an open-ended tax grab going back a decade. California, in particular, is known for an expansive notion of what constitutes local income. It went after a scriptwriter living in Arizona because the scripts were used by California film companies.

8. Keep proof of filing. Melinson has his clients retain either a certified mail receipt for a paper return or an email confirming acceptance of an e-filed return.

Here’s another way to establish that a return was received. Instead of having all your refund applied to the next year’s estimated tax, direct $20 of it into your bank account. Keep the bank statement.

9. Keep an eye on your tax preparer, or payroll tax handler. Tax collectors are predictably reluctant to give a break to victims of dishonest intermediaries, lest taxpayers seek out sketchy ones in order to lower their tax bills. But if you can document your diligence you might get mercy.

What will become of the forlorn taxpayers cited above? Taxpayer P is the victim of Pennsylvania’s quirky local-tax system. Much in the manner of a feudal king farming out tax collection to independent agents, municipalities delegate enforcement to private-sector firms, sometimes dropping the ball in the hand-off. For P, the middeman is Kratzenberg & Associates, doing business as Keystone Collections Group. A Keystone executive says this taxpayer can get his problem quickly resolved if he has the right documents.

The Nevadan with the house in California? He will probably owe the state little. The house, with a cost basis stepped up to the value on the owner’s death, was clearly sold at a loss. The worst that the Franchise Tax Board can do is to impose a failure-to-file penalty, and accountant Dolowich hopes this penalty will be waived.

The retiree with the ancient payroll tax liability may be out of luck. Accountant Caplan says the IRS agreed to a reprieve for her and some of the other victims on the hook collectively for at least $3 million. Then the agency changed its mind. She and 100 or so other taxpayers are in limbo.

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William Baldwin

William Baldwin

I aim to help you save on taxes and money management costs. I graduated from Harvard in 1973, have been a journalist for 45 years, and was editor of Forbes magazine from 1999 to 2010. Tax law is a frequent subject in my articles. I have been an Enrolled Agent since 1979.

Source: https://www.forbes.com

How long should you keep your tax records? The IRS website has a page that claims to answer this question: https://www.irs.gov/businesses/small-…

SBA Clarifies Its PPP Loans in 4 Important Ways

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Hundreds of thousands of small businesses that took Paycheck Protection loans finally have a path to getting their loans forgiven, but much delayed guidance released by the federal government is nowhere near final.

On Friday, the U.S. Treasury and Small Business Administration released an 11-page loan forgiveness application with instructions on how to complete it. While the document clarifies a number of administrative queries, such as when, exactly, does the eight-week covered period begin, it fails to address several key issues. Those include whether bonuses can count as cash compensation, and how quickly forgiveness will work.

The agencies also noted that the SBA would “soon” issue regulations and guidance to further assist borrowers and lenders. There’s no timeline for this next release. The good news is, there’s no need to rush to apply for forgiveness, says Ami Kassar, the founder and CEO of MultiFunding, a small-business loan adviser based in Ambler, Pennsylvania.

“You won’t be able to apply for forgiveness for at least 56 days after you received your PPP disbursement,” he says, “and in many cases, it will not make sense to apply until after June 30,” the date for when the covered period ostensibly ends.

In the meantime, here are four ways the application provides more clarity for business owners with PPP loans.

1. Shows a more flexible view of the eight-week covered period

The eight-week, or 56-day, covered period begins as soon as the loan funds reach a borrower’s account. But in practice that doesn’t always make sense–particularly for businesses whose pay periods may not correspond to that loan disbursement date. The forgiveness application allows some wiggle room. For “administrative convenience,” the SBA says borrowers can now elect an “alternative payroll covered period,” which would be timed with the first day of the next pay period following their PPP loan disbursement date.

For example, the SBA notes that if a business owner received her PPP loan proceeds on Monday, April 20, and the first day of her company’s next pay period begins Monday, April 27, that constitutes the first day of the alternative payroll. Note that the alternative payroll covered period does not apply to non-payroll costs.

2. Affirms that costs incurred–but not paid–during the covered period count toward forgiveness

Businesses don’t have to contort their normal bill-paying and payroll processes to conform with PPP. For business owners who pay rent on the first of the month, but don’t get their PPP disbursement until mid-month, this next point should be reassuring. The forgiveness loan application says eligible, non-payroll costs must be paid during the eight-week covered period or incurred during that time and paid on or before the next regular billing date, even if the billing date is after the covered period. Similarly, eligible payroll costs incurred but not paid during the eight-week period are covered if paid on or before the next regular payroll date.

 

3. Clarifies the timing of when a PPP loan must be spent

Prior to the application’s release, it wasn’t clear if a business owner had to spend the full amount of her PPP loan within the eight-week covered period to receive any forgiveness. Indeed, strict interpretations held that loan forgiveness depended on a business owner’s ability to spend 75 percent of a loan’s proceeds on payroll costs within the eight-week covered period.

That’s not the case. Instead, the application confirms that any amount spent during the covered period on allowable expenses, like payroll costs or rent, may be forgiven. But not all of a loan’s proceeds must be exhausted during the eight-week period. “There’s still a significant incentive to have the money spent over the eight weeks” to get a loan forgiven, says Chuck Morton, partner and co-chair of the corporate group at Venable, a Washington, D.C.-based law firm. “What this says now is that at least it’s not all or nothing.”

4. Confirms the level of reduced loan forgiveness for noncompliance

If a company’s head count or payroll costs don’t match pre-crisis levels, the amount of forgiveness will fall in most cases. Prior to the current application’s release, however, accounting firms were merely guessing about how much forgiveness would be reduced if a business failed to meet those two requirements. The actual calculation is based on a number of factors such as employee head count, if lower than pre-crisis levels, and employee pay, if wages drop by more than 25 percent for workers who earned $100,000 or less in 2019.

“The penalty discussion is new,” says Kassar, and “it’s not something you can just explain in five minutes.” Indeed, there’s a complicated worksheet for calculating forgiveness, but at least now the numbers are firm and businesses can ascertain what their level of forgiveness might look like in their own unique situations, he adds.

By Diana Ransom
GM-980x120-BIT-ENG-Banner
The SBA has put out the Loan Forgiveness Application for the PPP program. With instructions it is 11 pages and it requires a lot of payroll information in order to calculate forgiveness. Anyone who needed help preparing the original PPP application is definitely going to need help with this as it is significantly more complicated. The good news is that the SBA has finally give guidance on what payroll “costs incurred and payments made” actually means. They are saying that it refers to wages and salaries earned during the eight week covered period, and paid either during the covered period or on or before the regular payroll date immediately following the covered period.

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