All you need to know about your Income Tax Refund Status

by | Feb 20, 2021 | Blog, Income Tax Refund, Tax Refund

All you need to know about your Income Tax Refund Status

All you need to know about your Income Tax Refund Status

 

One of the most common questions of the taxpayers during the tax season is “Where is my tax refund?” The IRS would start its tax refund processing from 12th February and the refunds would have to go through mainly three stages.

  1. The Return received
  2. The Return approved
  3. The Refund sent 

 The time is taken for the refund processing

 In general, the time taken for processing the Income Tax Refund by the IRS would depend upon the mode that has been used for filing Income Tax Returns.

Tax returns filed by Direct Deposit

 When you are filing your tax returns electronically with the Direct Deposit method, you can obtain your tax refunds soon. According to the IRS, within 21 days after acceptance of the Income Tax returns the refund is done for most of the citizens.  

 Tax returns filed by mail

 If the Income Tax returns have been filed by paper then it will take some time and this time might be longer due to the outbreak of the pandemic COVID-19. It has been advised by the IRS to wait for 4 weeks after filing your tax returns before you start checking the status of your tax refund. Also, this processing of tax refund can take longer and can be around 6 to 8 weeks.

Refunds obtained with EITC or ACTC

 The IRS would not be issuing any refunds before mid of February for those tax refunds which would include the EITC (Earned Income Tax Credit) and the ACTC (Additional Child Tax Credit). This rule is applicable under the PATH (Protecting Americans against Tax Hikes) Act. This Act mainly aims at the detection and prevention of tax fraud and applies to all tax preparation methods. By this extension in the refund period, it will give the IRS much more time to ensure that the taxpayers are claiming the tax credits properly. For the filers of the EITC and the ACTC, the IRS considers completing the refund by the first week of March.

 The Process of Income Tax Refund

Let us have a look at the process which is involved in the processing of the Income Tax refund for US citizens.

Status checking after 24-48 hours from e-filing

After filing Income Tax returns, the taxpayers can easily check their status by the use of the IRS tool i.e. “Where’s My Refund?” The major requirements for checking your refund status are the Social Security Number or the ITIN, the exact amount which must be refunded, the filing status of the taxpayer, etc. 

Notice of the Return Received

Once the processing for the Income Tax return has been started by the IRS, the “Where’s My Refund” tool would highlight the status as “Return Received”. Taxpayers would not be able to view their Tax refund date unless the tax return processing has been finished by the IRS and the tax refund has been approved by the IRS.

Change in status 

With the IRS finishing the processing of tax returns and providing confirmation about the approval of tax refund, the status of the “Where’s My Refund” tool would be changing to “Return Approved” from “Return Received”.

Refund Date on Refund tool

Once the status of the tax refund has changed to “Refund approved” a personalized refund date would be specified by the IRS. 

Refund Status on the tool 

In case of your status on the “Where’s My Refund?” tool shows “Refund Sent”, then it means that the tax refund has been sent to the taxpayer’s financial institution for Direct Deposit. If opted for direct deposit, then it usually takes around 1-5 days for the financial institution to fund the deposit into the taxpayer’s account. However, if opted for a tax refund via electronic mail it can take some weeks for the tax refund’s arrival. 

However, despite the simplified procedure taxpayers can have many other questions related to their Tax Refund such as “I have not received my tax refund even the tax return has been received by the IRS since 21 days”, “I have got my tax refund in the form of a cheque even though I had opted for Direct Deposit”, etc. In many cases, the refund can take a long time if there has been an error in the tax return filing or if incomplete information has been received. Moreover, the limit for direct deposits into a particular bank account has been limited to 3 tax refunds in a year. Your limit might have been exceeded. 

Conclusion

So, if the tax refund processing timeline has been exceeded and the anxiety is rising about its status the “Where’s My Refund?” tools can be helpful. Or else you can consider connecting with the IRS support over the phone and enquire more about your status.

If your Holiday Bonus was also taxed?

by | Feb 19, 2021 | Tax Extension, Tax Planning, Tax Preparation

If your Holiday Bonus was also taxed

If your Holiday Bonus was also taxed?

 

December is the holiday season and the perfect time for giving gifts. It is the time when your employer might even plan about giving bonuses to you. This would reflect a sense of gratitude towards you for the good services you have provided across the year. When you come across the news that you would be receiving a bonus this holiday season, it’s obvious for you to make certain plans about how to spend your extra income you receive.

However, you must remember that the holiday bonuses you receive would be considered as compensation exactly in the same way as that of your salary paychecks. So, taxes would be withheld from the holiday bonus you receive. 

Now, let us have an idea on how and in which way the holiday bonus you receive would be taxed.

Social Security Tax

In the year 2020, you would have to pay Social Security tax on all the compensation you have received up to $137,700.However, if you have not reached up to that limit, and then your employer would deduct around 6.20% from the bonus you would obtain for the purpose of Social Security.

Federal Income Tax

When you are receiving your bonus and it is an additional income for you, then the IRS would definitely withhold a flat percentage from your bonus.  Earlier, the federal income tax rate which would be withheld on the bonus was 25% which has been reduced to 22% now. Moreover, your employer can combine your salary and bonus and then withhold the taxes from the entire amount. This would be much higher than 22% but you should be assured that the money which has been withheld would not be lost. The tax rates on your bonus would be much higher than the actual tax rate levied on the total income you have earned. So, while filing your tax returns you would get back some of the amounts as your federal tax return.

 Medicare Tax

You would be paying Medicare taxes on all the compensation that you have received and hence, another 1.45% would be deducted in the form of Medicare Tax.

 State  Income Tax

 Most of the states would impose Income Tax separately on the bonus that you have received. So, the State Income Tax would be withheld at the same rate as determined by the State Law.

Contributions towards Retirement Plan

  In case, you have decided along with your employer to withhold a particular percentage from your salary as a contribution made towards your retirement plans such as a 401(k)plan or any other plan then it would be withheld from your supplemental income or bonus.  

 For example, if you and your employer have decided together on the withholding of 15% from your salary towards your retirement plan then 15% would be withheld from your bonus currently. So, this might be harder on your finances as of now but it will help in having a larger fund for your future after you retire.

 So, now by adding all this resulting amount would be deducted together from your supplemental income/bonus.  However, you must keep in your mind that today you would be obtaining the bonus and you can even get some amount back in the form of a tax refund  

 Conclusion

 Hence, if you are having some supplemental income in the form of a bonus then you are supposed to pay taxes on them.

Indians in the US must file taxes irrespective of their immigration status

by | Feb 16, 2021 | Tax Planning, Tax Preparation, Tax Refund, Taxtips

Indians in the US must file taxes irrespective of their immigration status

Indians in the US must file taxes irrespective of their immigration status

You might have moved to the US a few days ago or some years back, but if you have earned any kind of income in the US which might be cash or check the IRS should be intimated about it irrespective of your immigration status. 

Since the tax filing has opened for the US taxpayers, this is the right time to file your taxes even if you are a non-resident in the United States. 

For the Indians residing in the US, the tax filing time can be confusing with a lot of scenarios making it difficult to understand if tax filing should be done or not. Let us check out some such circumstances or scenarios where tax filing can be confusing for the Indians in the US.

If you do not have your Social Security Number

The tax returns with the IRS should have a Personal Identification Number. Mostly, taxpayers use their SSN (Social Security Number) for this purpose. But, if you do not have an SSN or you are not eligible to have an SSN then what needs to be done?

Since 1996, the IRS has been handling such a situation by issuing ITINs i.e. Individual Tax Identification Numbers. This would be helpful for those taxpayers who are not eligible for obtaining a valid Social Security Number (SSN).  The ITIN can be obtained by the use of the W-7 Form and it takes around 6-10 weeks for receiving it after the completion of the processes. However, if you are a Non-resident Indian and do not have an ITIN then you can even send your tax returns along with your Form W-7. You would also have to send some documentation for the confirmation of your identity. If you are filing your tax returns for the first time then this option is a convenient one.

One more step that would be necessary here is to have enough documentation for supporting the income and expenditure which you can claim on your tax returns. A major part of these documents is mainly provided by either your employer, the Government, or any financial institution. 

If your immigration status has not been formalized

Even if your immigration status has not been formalized, you can still file your tax returns in a hassle-free manner. The information present on your tax returns would remain confidential and would not be shared by the IRS with any entities except a few Government entities. The law “Taxpayer Bill of Rights” provides the right to privacy for each taxpayer which means irrespective of your immigration status if you are filing your tax returns the IRS would not make any unnecessary investigations.  So, you are filing your tax returns and maintaining your compliance with the law.

Will there be any benefits if you decide to file your tax returns irrespective of your immigration status?

Even if your immigration status is not formalized, you can get a couple of benefits by filing your tax returns. If you are an employer, then you must have paid taxes during the entire year and there are chances that you might have paid much more than you owed. So, you can file your returns and get tax refunds. 

Moreover, some tax credits can be very beneficial irrespective of your immigration status. With these tax credits, you can get tax refunds even in case you do not owe any taxes to pay. The Child Tax Credit (CTC) can give you up to $2000 tax credits and the Additional Child Tax Credit (ACTC) would give $1400 refundable tax credits.

Furthermore, by filing your tax returns you are beginning the process of becoming a permanent resident of the United States. You can prove your good moral character by filing your tax returns on time. 

If you are self-employed

If you are self-employed or have your own business, then you would have to maintain a lot of records related to your income and expenditure. This is quite tedious and you would have to do a lot of work for this record maintenance. However, you can find various tax return filing online tools which would provide you with QuickBooks to track your income and expenses throughout the year.

Conclusion

So, the immigration status of an individual residing in the US cannot be a blocker while filing his tax returns. Filing tax returns diligently and on time is a sign to be compliant with the law which must be practised by all the individuals living in the country.

 

What exactly is Earned Income Tax Credit?

by | Feb 12, 2021 | 2021 Tax Returns, tax filing, Tax Planning, Tax Preparation, Taxtips

What exactly is Earned Income Tax Credit?

What exactly is Earned Income Tax Credit?

 

The Earned Income Tax Credit (EITC) is helpful in obtaining a tax break for those individuals and families who have low-to-moderate income categories. In case, you are eligible to claim this credit you would be able to reduce your taxes and increase your tax refund. The refund you would obtain would be the amount of your credit if the EITC credit is more than the amount of taxes you owe.

According to the IRS report, around 25 million taxpayers from the US have received EITC last year and the average EITC received was approximately $2,461. However, millions of Americans are still unaware of the advantages that can be availed by the Earned Income Tax Credit. There are a lot of Americans who miss out on the EITC as they are qualified for claiming the credit newly or they do not file the tax returns as their income falls below the filing limit of the IRS.

Eligibility to claim the Earned Income Tax Credit 

You would be eligible to claim the EITC in case you can meet the income limits that are mentioned below.

  1. You must be a US citizen.
  2. You are above the age of 25 years or you are having qualifying children.
  3. You are not filing your tax returns under the status “Married filing separately”.
  4. You are obtaining your Earned income from employment and the unemployment income does not count.
  5. You would be qualifying for EITC if you are obtaining your income from any home business or you provide services.

Income limits to be eligible for claiming EITC

The income limits are adjusted every year and for every year the earned income and AGI (Adjusted Gross Income) must not be more than the below-mentioned figures.

  1. $50,594 for those filing tax returns as single with three or more qualifying children or $56,844 for those married and filing tax returns jointly with three or more qualifying children.

     

  2. $47,440 for those who are filing their tax returns as single with two qualifying children or $53,330 for those who are married and filing tax returns jointly with two qualifying children.

     

  3. $41,756 for those filing tax returns as single and having one qualifying child and $47,646 for those who are married filing their tax returns jointly and having one qualifying child.

     

  4. $15,820 for those filing tax returns as single and having no qualifying children and $21,710 for those who are married filing their tax returns jointly and having no qualifying child.

What is the amount of credit?

The actual amount of credit you can claim would depend on your income and the number of your qualifying children.  The maximum credits that can be obtained for the tax year 2020 are mentioned below:-

  1. $6,660 for those who are having three or more than three qualifying children
  2. $5,920 for those who are having two qualifying children
  3. $3,584 for those taxpayers having one qualifying child
  4. $538 for those taxpayers who have no qualifying children

What do you mean by a qualifying child?

For a child to be qualifying for the EITC, there are some tests which the child must meet.

  • Age –
    The child must be below the age of 19 years or the age of 24 years if he is a full-time student or he can be of any age if he is permanently disabled.

  • Residency –
    You and your child should have lived in the US together for at least a period of more than half a year.
  • Relationship –
    Your qualifying child can be your son, daughter, stepchild, foster child, or your brother, sister, half brother or sister, or step brother/sister.

     

  • Joint Return – Your child would not be a qualifying child for claiming the EITC if he has filed a joint return. 

 Conclusion

Hence, EITC (Earned Income Tax Credit) is one of the best credits which can be of great advantage for those Americans who are struggling with their finances. Qualified tax software must be used by the Americans to maximize their EITC. However, it is advisable not to commit any fraud to obtain the credit as it can lead to being penalized by the IRS.

Why file your taxes early through e-File?

by | Feb 8, 2021 | 2021 Tax Returns, Tax Planning, Tax Preparation, Taxtips, Uncategorized

Why file your taxes early through e-File?

Why file your taxes early through e-File?

 

On 12th February 2021, the IRS opened up the tax season for the year 2020 and now the process of e-filing is going on.  It is a common scenario where taxpayers wait till the end of the tax season for filing their tax returns. But, there is no significant reason as to which one should wait till the end for filing their tax returns.

Undoubtedly, tax refunds would have an impact on your finances and if you have a refund due from the IRS then it is even wiser to file your returns soon.

Let us have a look at the main reasons to file your tax returns early

1.To obtain the refunds soon

The pandemic COVID-19 has been the main reason for affecting the finances of millions of Americans. Many have become unemployed and many have been furloughed. In such adverse financial situations, tax refunds would be helpful and you would like to have your refunds as soon as possible. According to the IRS, every 9 taxpayers out of the 10 taxpayers filing their tax returns would receive their tax refunds within 21 days of e-filing or even faster than that. Moreover, there are a large number of tax deductions and credits available which would make your refund amount a bigger one. So, why not file for your tax returns early and get your refunds soon.

2.More time to pay your taxes   

Even if you have taxes to be paid to the IRS, you still can file your tax returns early. In case you file your tax returns early there would not be the necessity to pay your taxes due by the mid of April which is the deadline for tax payment. If you are filing your tax returns early, you will have ample time to understand and figure out how to pay your taxes. Moreover, you would also have the option to make contributions to the IRA in 2020 and can even avail the benefits of additional tax deduction.

3.Avoiding tax extension

If you are filing your taxes early, then you are going to avoid the chances of filing for a tax extension. Tax extensions are mainly not due to financial needs but due to disorder or disarrangement. Many people who are waiting until the last minute to file their tax returns are in the need of extra time to find out about the deductions or find out the receipts. 

If you are filing for a tax extension and you are not able to pay whatever you owe, you will be charged with interest and penalties on your outstanding debts. If you are preparing your tax returns early, you can be able to avoid this situation.

4.Financial Information

In case, you are in a phase where you are expecting that you will be purchasing a house, you would be starting your studies again, etc. then you must start filing your tax returns early. By this, you can get the essential information soon. College-going students would be able to use the information provided in Form 1040 for financial aid and if you are a home buyer then you can also show your completed tax return as your household income’s proof. When your tax returns are done early, then the paperwork for these processes can begin early.

5.Preventing tax refund fraud

By filing your tax returns early, you may not be able to eliminate the threat of identity theft. However, it will help protect your tax refund. It might happen that before you file your tax return, someone else has already filed a tax return using your Social Security number (SSN). This is tax refund fraud or scam and usually, it occurs early in the tax season before most taxpayers have filed their returns. So, you should try to keep your SSN a secret and make an attempt to file your taxes early. 

6.Less competition 

It is quite tough to get good and expert tax professionals that would help you in your tax return preparations. If you have not taken an appointment, it is difficult to get one now. Some tax professionals would even charge more when the tax filing deadline approaches closer.  So, the best way is to avoid all troubles by filing your tax returns early.

7.Avoid tax deadline stress

Most of the taxpayers are always stressed about filing their tax returns. It is a complicated task and it is better to get rid of the difficult things soon. Once, your tax return filing is done you can just sit back, relax and wait to receive the refund.

Conclusion

Hence, it is good to file your tax returns early to utilize the various advantages of early filing offers. So, if you have not filed your tax returns you must plan to do it soon.

Tax Deductions for single NR Indian Women in the US

by | Feb 6, 2021 | tax filing, Tax Planning, Tax Preparation, Taxtips

Tax Deductions for single NR Indian Women in the US

Tax Deductions for single NR Indian Women in the US


The tax season has arrived and it’s the perfect time for your finances to boost up. This is the perfect time for claiming your tax deductions and receiving maximum tax refunds. If you are a single NRI woman residing in the US then you have a lot of opportunities to knock your taxes right now.

A win-win with your taxes

As a single NRI woman in the US, you will not have to wait for the arrival of your various financial documents such as both the sets of Form W-2, Form 1099s, and some other financial documents, unlike the couples.  Since there is less paperwork involved and less information to be collected, you can start filing your tax returns immediately and thus; obtain your tax refunds soon. 

For maximizing your tax refunds, there are a few ways by which you can get the best tax refunds this tax season.

Your correct tax filing status

  • One of the most important steps you can take while filing your Federal taxes is to ensure that you are filing your tax returns by using the correct filing status.

  • According to the IRS, there are five major categories under which you can file your tax returns i.e. Single, Married but filing tax returns separately, Married but filing tax returns jointly, head of a household, and a qualifying widower who has a dependent child.

  • Your taxes, tax credits, deductions, standard deductions, etc. would be mainly based on your tax filing status.

  • If you are filing your tax returns with the Single status, then the current Standard Deduction that can be claimed is $12,400.

  • If you are filing your tax returns as the “Head of the Household” status, then you can claim a bigger Standard Deduction of $18,650. However, this can be feasible if you have the status of both Single and also supporting a dependent.

The 401(k) plan and the IRAs

After your filing status, the next thing which you need to consider is the 401(k) plan. This can be an excellent way for you to obtain some tax benefits. 

  • In case contributions are being made to your 401(k) plan, and then it is one of the best things which you have done. By this, the contributions which you are making are pre-tax that would help in lowering your taxable income. Moreover, by these contributions to the 401(k) plan your investments would easily become tax-free.

  • Furthermore, you can also make contributions into your 2019 IRA up to an amount of $6,000 and $7,000 if you are 50 years or more. By this, you would get a good tax deduction on your taxes for 2020.

Family and Dependent credits

  • If you are a single parent and you are meeting the income limits then the EITC (Earned Income Tax credit) would be a great benefit.

  • This credit can help in lowering the taxes which you owe for payment and you can also qualify for obtaining a refund.  In case, you are a single mother having 3 kids or more than 3 kids then you can obtain a credit of up to $6,660.

  • In general, the biggest expense associated with children is the daycare expenses. Those expenses can be easily offset by using the Child and Dependent Care Credit.

  • The Child and Dependent Care Credit can vary up to 35% of your expenses up to $3000 for one child i.e. $1050 and 35% of your expenses up to $6000 i.e. $2100 for two children.

  • In case, you are having a qualifying child who is below the age of 17 years then you would be able to claim Child Tax Credit i.e. $2000.

  • By the deductions, you are lowering the taxable income you have whereas with tax credits you are decreasing the taxes you owe.

Conclusion

So, if you are a Single NRI woman in the US then these tax deductions and credits can help reduce your taxes and increase your refunds.