Category: Tax News

What do I need to do to receive a stimulus payment?

There is nothing to do if you filed a tax return for 2018 or 2019 or for Social Security and Railroad Retirement recipients who are not typically required to file a tax return. If you have not filed your 2018 or 2019 return the IRS recommends that you file back taxes for 2018. If you are someone that doesn’t normally need to file visit the IRS Non-Filers Payment Info page.

Do taxpayers on Social Security who don’t typically file a return need to file a return?

Social Security beneficiaries who are not typically required to file tax returns do not need to file an abbreviated tax return to receive an Economic Impact Payment. Instead, payments will be automatically deposited into their bank accounts.

How much will I receive?

The amount you are eligible to receive is determined by your Adjusted Gross Income (AGI). The IRS will look at your 2019 return first. If you have not filed a 2019 return, the IRS will use your 2018 AGI to determine eligibility. The eligibility, amount and status of your stimulus payment can be found at IRS.gov/coronavirus.

The stimulus plan indicates the following maximum amounts are available depending upon filing status and income. Qualified recipients will also receive $500 for each qualifying dependent under age 17.

Non-Filers: Enter Your Payment Info Here

If you don’t file taxes, use the “Non-Filers: Enter Your Payment Info Here” application to provide simple information so you can get your payment.

You should use this application if:

• You did not file a 2018 or 2019 federal income tax return because your gross income was under $12,200 ($24,400 for married couples). This includes people who had no income. Or
• You weren’t required to file a 2018 or 2019 federal income tax return for other reasons.

Do not use this application if you receive the benefits below. If you receive these benefits, we already have your information and you will receive $1,200.

• Social Security retirement, disability (SSDI), or survivor benefits
• Railroad Retirement and Survivor Benefits

Special note: People in these groups who have qualifying children under age 17 can use this application to claim the $500 payment per child.

Sources: https://www.irs.gov/coronavirus/non-filers-enter-payment-info-here

Update your bank account or mailing address

• If we don’t have your direct deposit information from your 2018 or 2019 return – and we haven’t yet sent your payment – use the Get My Payment application to let us know where to send your direct deposit.
• 2019 Filers: We will send your payment using the information you provided with your 2019 tax return. You will not be able to change it.
• 2018 Filers: If you need to change your account information or mailing address, file your 2019 taxes electronically as soon as possible. That is the only way to let us know your new information.

Note: We are not currently able to process individual paper tax returns due to the COVID-19 outbreak.

Sources: https://www.irs.gov/coronavirus/economic-impact-payments

INDIVIDUAL INCOME TAX AND ESTATE TAX

TCJA makes significant revisions to the individual income tax and the estate tax. Unless otherwise noted, these provisions expire at or before the end of 2025. There are, however, several notable permanent provisions in this category, including the zeroing out of the Affordable Care Act (ACA) individual mandate penalty, the change in inflation indexing, and changes in the tax base for measuring business income (other than the pass-through deduction, see below) which apply to both corporations and pass-through entities.

Tax Rates

TCJA reduces marginal statutory tax rates at almost all levels of taxable income and shifts the thresholds for several income tax brackets (figure 1).The top marginal rate falls from 39.6 to 37 percent. The remaining rates are 10, 12, 22, 24, 32 and 35 percent.

Child Tax Credit and Who Qualifies

You can claim the Child Tax Credit for each qualifying child who has a Social Security number that is valid for employment in the United States.

To qualified for child tax credit, your dependent generally must:

• Be under age 17 at the end of the year
• Be your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of one of these (for example, a grandchild, niece or nephew)
• Provide no more than half of their own financial support during the year
• Have lived with you for more than half the year
• Be properly claimed as your dependent on your tax return
• Not file a joint return with their spouse for the tax year or file it only to claim a refund of withheld income tax or estimated tax paid
• Have been a U.S. citizen, U.S. national or U.S. resident alien

You qualify for the full amount of the 2023 Child Tax Credit for each qualifying child if you meet all eligibility factors and your annual income is not more than $200,000 ($400,000 if filing a joint return).

Parents and guardians with higher incomes may be eligible to claim a partial credit.

TCJA expands the child credit in several ways. Under prior law, the credit was $1,000 per child under 17 years old, not indexed for inflation; an amount equal to 15 percent of earnings over $3,000 was refundable, up to the full $1,000 per child value of the credit. The child tax credit phased out starting at income of $110,000 (for married filing joint returns and $75,000 for singles).3 The credit value and the income phaseout range were not indexed for inflation. Under TCJA, the maximum credit amount doubles to $2,000 per child under 17 years old in 2018. The refundable portion was also increased to 15 percent of household earnings above $2,500, up to $1,400 per child in 2018.The credit phaseout range was increased substantially and does not begin until income reaches $400,000 for married filing jointly returns and $200,000 for singles. The $1,400 maximum refundable amount limit is indexed for inflation,but the maximum total credit amount and the income phaseout range are not. Unlike prior law, TCJA limits eligibility for the credit to children who have a Social Security number.

The TCJA creates a new nonrefundable $500 credit for any other dependents the taxpayer can claim, including children who are too old to be eligible for the child tax credit, full-time college students, or any other adult member of the household for whom the taxpayer provides significant financial support. The$500 amount

TAX POL ICY CENTER | URBAN INSTITUTE & BROOKINGS INSTITUTION 3

is also not indexed for inflation. Taxpayers do not need a valid Social Security number for these dependents to be eligible for the new credit.

Standard and Itemized Deductions

The standard deduction for taxpayers who do not itemize deductions on Form 1040, Schedule A, has increased. The standard deduction amounts for 2023 are:

$27,700 – Married Filing Jointly or Qualifying Surviving Spouse (increase of $1,800)
$20,800 – Head of Household (increase of $1,400)
$13,850 – Single or Married Filing Separately (increase of $900)
Taxpayers who are 65 and Older or are Blind
For 2023, the additional standard deduction amounts for taxpayers who are 65 and older or blind are:

$1,850 for Single or Head of Household (increase of $100)
$1,500 for married taxpayers or Qualifying Surviving Spouse (increase of $100)

TCJA also changes the structure of several major itemized deductions.Under prior law, itemizers could claim deductions for all their state and local property taxes and the larger of either income or sales taxes (subject to overall limits on itemized deductions). TCJA limits the itemized deduction for all state and local taxes to $10,000 annually, for both single and joint filers, and does not index that limit for inflation.

Under prior law, taxpayers could deduct interest on mortgage payments associated with the first $1 million of principal paid on debt incurred to purchase (or substantially renovate) a primary and secondary residence plus the first $100,000 in home equity debt. For taxpayers taking new mortgages, TCJA limits the deductibility to the interest on the first $750,000 of loan principal on primary residences only for new loans after the effective date and eliminates the deductibility of interest for home equity debt.4

Previously, out-of-pocket medical expenses (including costs for health insurance) above 10 percent of adjusted gross income (AGI) were deductible. For 2017 and 2018, TCJA allows deductions for out-of-pocket medical expenses above 7.5 percent of AGI. After 2018, the prior law 10 percent threshold applies.

TCJA repeals the phase-down of the amount of allowable itemized deductions (Pease provision). This limitation took effect at incomes above$320,000 for taxpayers filing joint returns ($266,700 for single filers).

Affordable Care Act (ACA) Penalty Tax

Starting in 2019, TCJA sets the Affordable Care Act’s individual mandate penalty tax to zero.5 Previously, households without qualifying health insurance were required to pay a penalty equal to the lesser of 2.5 percent of household income or $695 per adult and $347.50 per child, up to $2,085. Under the new law, individuals who do not enroll in adequate health coverage plans will not face a penalty starting in 2019. This will reduce the federal budget deficit because fewer people will obtain free or subsidized coverage, and the reduced costs of the ACA premium tax credit and other subsidies and Medicaid benefits will far exceed the lost revenue from setting the penalty tax rate to zero. This provision does not sunset.

Capital Gains and Alternative Minimum Tax

TCJA retains the 0, 15, and 20 percent preferential tax rates on long-term capital gains and qualified dividends and the 3.8 percent net investment income tax (NIIT). The 15 percent rate now applies to those with taxable incomes between $77,200 and $479,000, and the 20 percent rate applies to those with taxable income over $479,000. Under prior law, capital gains for those in the 25 through 35 percent tax brackets were taxed at a 15 percent rate, and capital gains for those in the 39.6 percent bracket were taxed at a 20 percent rate. The TCJA separates the tax rate thresholds for capital gains and dividend income from the tax brackets for ordinary income for taxpayers with higher incomes. The NIIT applies to interest, dividends, short- and long-term capital gains, rents and royalties, and passive business income.

TCJA retains the individual alternative minimum tax (AMT) but raises the exemption levels to $109,400 for taxpayers filing joint returns ($70,300 for singles) and raises the phaseout threshold to $1,000,000 for joint filers($500,000 for singles). Under prior law, the exemption was $86,200 for taxpayers filing joint returns ($55,400 for singles), and it began to phase out at income above $164,100 for joint filers ($123,100 for singles). The exemption amounts and phaseout thresholds are indexed for inflation.

Inflation Indexing

TCJA changes the measure used for inflation indexing, from the CPI-U to the chained CPI-U. The chained CPI-U more accurately measures changes in consumer welfare resulting from price changes because it accounts for the fact that people substitute for goods whose prices increase faster than others. It thus generally increases at a slower rate than the traditional CPI-U, implying that individuals will end up in higher tax brackets and that indexed tax credits (like the EITC) will increase at slower rates than they would have under the old indexing system. The change in indexing is permanent.

Pass-Through Deduction

TCJA introduces a new complex deduction for income from pass-through business entities (sole proprietorship, partnerships, limited liability companies, and S corporations). The deductible percentages vary based on taxpayers’ income, business type, and the wages paid and property owned by the business. Joint filers with taxable income below $315,000 ($157,500 for singles) are eligible to receive a 20 percent deduction of their qualified business income (QBI), regardless of business type.

At higher income levels, business type, wages paid, and investment property affect the deductions. If taxable income is between $315,000 and$415,000 (Married Filing Jointly), the unlimited deduction for QBI phases out,with the deduction formulas depending on business type.6 If taxable income is above $415,000 (joint filers), there is no deduction for income from a “specified service trade or business.”7 For other businesses, the deduction cannot exceed the applicable share of the greater of (a) 50 percent of W-2 wages paid by the business or (b) 25 percent of wages plus 2.5 percent of qualified property for the business.

Changes in Tax Base for Pass-Through Businesses

In general, pass-through businesses, like corporate income taxpayers,will be subject to TCJA’s changes to business income and deduction items(changes in the tax base). The new law extends 100 percent bonus depreciation(more commonly known as expensing) for all business taxpayers until 2022 and then phases it out in 20 percentage-point increments through 2027. TCJA also includes simplified accounting rules for smaller

firms and increases the annual Section 179 expensing limit up to $1 million for qualified property (sometimes called “small business expensing”).But the law limits the amount of net interest (interest paid less interest received) that large pass-through businesses can deduct to 30 percent of adjusted taxable income, similar to that for corporations (firms with less than $25 million in gross receipts are exempt).8 Under prior law, interest was generally deductible without limits.

TCJA also changes the law regarding net operating losses for businesses.First, TCJA limits the size of the net operating loss deduction to 80 percent of the business’s net income in a given year. Losses can be carried forward indefinitely, but not backward (except for farm businesses, in certain cases).Under prior law, losses could be carried back for up to two years and carried forward for up to 20 years. Second, TCJA eliminates the ability for a taxpayer to use a net operating loss in one business to offset income from other sources. All pass-through investment rules (in contrast to the deduction described in the previous section) are permanent except for expensing of equipment investment.

Estate Tax

TCJA doubles the estate tax exemption to $11.2 million for single filer sand $22.4 million for couples and continues to index the exemption levels for inflation. The top estate tax rate remains at 40 percent.

Sunsets

A notable feature of the individual tax and the estate tax provisions is that all of them expire after 2025 except the reduction of the ACA penalty tax,the change in inflation indexing, and the changes in the business tax base that apply to both pass-through businesses and C corporations. Some provisions expire sooner (for example the increased deductibility of medical expenses applies only to tax years 2017 and 2018). In contrast, many of the corporate tax provisions discussed below do not sunset, although some of the rates for corporate tax components will change. These choices were made to limit the revenue cost of the TCJA to a level consistent with the overall constraint on the 10-year revenue loss in the Congressional Budget Resolution and to complywith Senate budget rules that require no increase in the federal budget deficitafter the 10th year.

Source: https://www.irs.gov/pub/irs-pdf/p5307.pdf

With mind-numbing complexity, today’s broken tax code can make it incredibly difficult for our nation’s small- and medium-sized businesses to succeed, grow, and create jobs in our communities.Here’s how the Tax Cuts and Jobs Act will lift these burdens off our Main Street job creators and the millions of Americans they employ:

More Jobs

• 25%: The hard-earned business income of our Main Street job creators will be taxed at no more than 25% – the lowest tax rate on small business income since before World War II. With this tax relief, they will be able to keep more of their earnings to grow their business, hire more people, and give their workers a raise.

• Zero, 12%, 25%, 35%, and 39.6%: Lower individual tax rates for small business owners, their

workers,and their families will give all Americans the freedom to keep more of their pay checks to use on what is important to them.

Fairer Taxes

• Eliminating the Alternative Minimum Tax (AMT): Delivers simplicity, fairness, and certainty to millions of families and job creators who will no longer have to deal with the AMT – a feature of today’s broken tax code that forces many taxpayers and businesses to calculate their taxes twice every year.

• Delivering Immediate Relief from the Death Tax: Helps family-owned businesses and family

farms continue into the future by ensuring they will no longer face double or even triple taxation

when small business owners pass down their life’s work to the next generation.

Bigger Paychecks

• Unprecedented expenses of business investment: Helps unleash the growth of jobs, productivity, and pay checks by allowing small businesses to deduct more of the cost of new equipment that improves operations and enhances the skills of their workers.

• Preserving deductibility of interest expense: Small businesses will be able to write off the interest on loans that help these Main Street entrepreneurs start a business, hire workers, and increase paychecks.

Source: https://waysandmeans.house.gov/wp-content/uploads/2017/10/WM_TCJA_PolicyOnePagers.pdf

The Tax Cuts and Jobs Act is focused on improving the lives of all Americans – especially the middle-class – by delivering more jobs, fairer taxes, and bigger paychecks. Here’s how the Tax Cuts and Jobs Act will help middle-class Americans and their families throughout their lives:

Starting a Career

• Unleashing job creation: The lowest tax rates in modern history for American businesses of all sizes will help them grow our economy and create more job opportunities for hardworking Americans throughout the nation.

• Zero, 12%, 25%, 35%, and 39.6%: A simpler, fairer tax code with five tax brackets instead of seven will better reward Americans’ hard work and allow them to keep more of their paychecks. And this simpler, fairer, and flatter tax code will be especially helpful for low- and middle-income Americans.
• Doubling the standard deduction: Protects more of every paycheck from taxes and helps make the tax code so straightforward that 9 out of 10 Americans will be able to file on a form as simple as a postcard.

Buying a Home

• Protecting the mortgage interest deduction: Ensures that middle-class Americans will preserve access to tax relief to help them achieve the American dream of home ownership.

Raising a Family

• Establishing a New “Family Credit”: This new Family Credit includes an expanded Child Tax Credit that is increased from $1,000 to $1,600 per child to help parents with the cost of raising children, and it provides a credit of $300 for each parent and non-child dependent to help all families with their everyday expenses.
• Preserving the Child and Dependent Care Tax Credit: Will help families care for their children and older dependents such as a disabled grandparent who may need additional support.
• Maintaining higher education tax benefits: Helps families save for and better afford tuition and education expenses.

• 25%: Main Street job creators will no longer be taxed at individual rates as high as 40%. Instead, small businesses will be taxed at no more than 25%, allowing Americans to keep more of their money to grow a new start-up, support their families, and create jobs

Starting a New Business

• 25%: Main Street job creators will no longer be taxed at individual rates as high as 40%. Instead, small businesses will be taxed at no more than 25%, allowing Americans to keep more of their money to grow a new start-up, support their families, and create jobs.

Giving Back

• Preserving a tax benefit for charitable contributions: Encourages and rewards Americans who give back to their local church, charity, or community organization.

Preparing for Retirement

• Rewarding saving and investment: Provides tax relief to help more families plan, save, and invest for a more comfortable and secure retirement.

For Your Children and Grandchildren

• Repealing the Death Tax: Americans will no longer face double – or even triple – taxation on family assets or family-owned business when they pass down their life’s work to the next generation.

Source: https://waysandmeans.house.gov/wp-content/uploads/2017/10/WM_TCJA_PolicyOnePagers.pdf