How Much Will Future Retirees Receive in Lifetime Social Security and Medicare Benefits?

by | Jan 17, 2021 | IRS, Social Security Number, tax filing, tax form, Tax Planning, Tax Preparation, Tax Refund, taxes

How Much Will Future Retirees Receive in Lifetime Social Security and Medicare Benefits?

Millennial couples who would retire around 2060 would approximately be receiving around $2.2 million in the form of lifetime Social Security and Medicare Benefits. This amount would be approximately double of the amount that a couple who would be retiring this year would receive.  The total Social Security and Medicare benefits are expected to rise even more for those generations which are born after the year 1995 if these programs would provide the continued benefits.

The Lifetime Social Security and Medicare Benefits and Taxes are mainly based on the reports for the Social Security and Medicare trust funds. According to the projection of this trust, a single male that is earning an average amount of wage is working every year and is retiring at the age of 65 years would receive benefits of around $570,000. In case of those couples who are going to retire this tax year with one of the spouses having a higher wage and the one earning lower wage the amount that would be received as Lifetime Social Security and Medicare benefits would be around $1,113,000.

With the rise in Social Security and Medicare benefits, the gap which is present between the benefits and the payroll taxes the employees owe will keep on growing. The main reason behind this is that the low cost of Medicare was designed in such a manner that it would only provide cover for the hospital costs; but the program now would provide cover for visits made to doctor, outpatient procedures, drugs prescribed and other categories of medical costs.

The increase in benefit amounts

The amount of Social Security and Medicare Benefits would be seeing a significant increase in future retirees. The most important cause behind this is that there is an increase in Social Security Benefits and the Medicare expenses are increasing due to modern health care services. Moreover, when life expectancies are higher it would imply that the Americans who are going to retire in the future would receive many more years of this benefit.

However, the major cause behind the financing gap which is prevalent between the benefits obtained and the taxes is the decrease in the birth rate starting in the mid-1960s. There has been a resulting shrinking in the number of the workers relative to the retirees and this has a special force in the period in which the Baby Boomers had started collecting these benefits in between the tax year 2008 and the mid of 2030s.

These issues would very soon come under the supervision of one head as the Congressional Budget Office Projects. The Government would not be able to pay complete benefits out of the funds of the trust for Social Security by the tax year 2031. 

The new President Biden has also recommended a further increase in the benefits available for the retirees i.e. approximately 9% on an average for those retiring by the year 2065. Moreover, the work of the Urban Institute reflects the fact that these changes would be able to extend the life span of the Trust funds for Social Security by only 5 years. 

Many workers at present have to face an implicit trade-off irrespective of their level of income.  The Government has promised higher Social Security and Medicare Benefits at an older age, but it has also set a small portion of its budget for the younger people and families for other programs such as student loan balances, children fall, and other programs not related to retirement.

 A large scale budget is the only solution to this trending problem related to Social Security and Medicare Benefits. 

Conclusion

So, it is necessary to understand the issues that have been present across several generations related to retirement and health benefits along with the taxes which would be applicable across the country.

IRS provides tax inflation adjustments for the tax year 2021.

by | Nov 30, 2020 | IRS, IRS credits, IRS e file Return

IRS provides tax inflation adjustments for the tax year 2021.

The IRS has announced the annual inflation adjustments in the tax year 2021 for around 60 tax provisions. These provisions would include the changes in the tax rates and also the other tax changes.

By the Consolidated Appropriation Act of 2020, there has been an increase in the minimum amount of tax addition that is done for your failure of filing tax returns within 60 days from the due date. Beginning with the tax returns that are due after 31st December 2019, the additional tax which must be paid would be $435 or 100% of the amount of tax which is due and this increase is a rise from $330.

Let us have a look at the tax items of the tax year 2021 which would be of great interest to the taxpayers.

  • Standard Deduction. 

  • For the married couples who are filing their tax returns jointly for the tax year 2021, the Standard Deduction rises to $25,100 which is an increase of $300 from the previous year.
  • For the married couples who are filing their tax returns separately or for the single individuals, the Standard Deduction would rise to $12,550 which is a rise of $150 from the prior year.
  • For the heads of the households, the Standard Deduction would be $18,800 for the tax year 2021 which is an increase of $150 from the previous year. 

  • Personal Exemption.

 The Personal Exemption for the tax year 2021 would remain 0 as it was for the tax year 2020. 

  • Marginal Rates.

  • For those taxpayers who are filing tax returns as single individuals with an income that is greater than $523,600, the marginal tax rate is 37%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $628,300.
  • For those taxpayers who are filing tax returns as single individuals with an income that is greater than $209,425, the marginal tax rate is 35%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $418,850.
  • For those taxpayers who are filing tax returns as single individuals with an income that is greater than $164,925, the marginal tax rate is 32%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $329,850.
  • For those taxpayers who are filing tax returns as single individuals with an income that is greater than $86,375, the marginal tax rate is 24%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $172,750.
  • For those taxpayers who are filing tax returns as single individuals with an income that is greater than $40,525, the marginal tax rate is 22%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $81,050.
  • For those taxpayers who are filing tax returns as single individuals with an income that is greater than $9,950, the marginal tax rate is 12%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $19,900. 

  • Itemized Deduction.

In the tax year 2021, there is no limitation on the itemized deductions. This limitation was eliminated by the Tax Cuts and Jobs Act. 

  • Alternative Minimum Tax Exemption.

For individuals filing tax returns as single, the Alternative Minimum Tax Exemption is $73,600 which would start to phase out at $523,600. This Alternative Minimum Tax Exemption is $114,600 for those taxpayers who file their tax returns as Married Couple and this exemption phases out at $1,047,200. 

  • Earned Income Credit.

For the qualifying taxpayers, the Earned Income Credit amount would be $6,728 which is an increase from the Earned Income Credit of $6,660 from last year. 

  • Transportation Fringe Benefit.

The monthly limitation in the case of Transportation Fringe Benefit remains $270 which is considered as the Monthly limitation for the qualified parking. 

  • Foreign Earned Income Exclusion.

For the tax year 2021, the Foreign Earned Income Exclusion is $108,700 which was $108,600 in the previous year. 

  • AGI.

The AGI amount used by the taxpayers who are joint filers for the determination of the reduction in the Lifetime Learning Credit is $119,000. 

  • Estates of Decedents 

The Estates of those decedents who have died during the tax year 2021 have an exclusion amount of $11,700,000 which is higher than the exclusion amount of $11,580,000 available for the estates of the descendants of 2020. 

Conclusion 

Hence, these tax provisions have been introduced by the IRS as a means to help the taxpayers with inflation adjustment.

What is an IRS free file?

by | Nov 26, 2020 | IRS, IRS e file Return

What is an IRS free file? 

The IRS Free File Program can be described as a public-private partnership that has been established between the IRS and tax preparation filing software industry entrepreneurs who are providing their brand name products free of cost.  By the IRS free file, taxpayers can prepare their tax returns and file their federal income tax returns online free of cost. 

  • By traditional IRS Free File, taxpayers can obtain free online tax preparations and federal tax filing options on the partner websites of the IRS. These partners are the online tax preparation companies that would help in developing and delivering the service of tax preparation and tax filing to the taxpayers.
  • The IRS Free File Fillable Forms are the electronic tax forms that can be filled online and without paying any charges as well. However, you must keep in mind the fact that the IRS Free File Option is only made available for those taxpayers who have an income i.e. Adjusted Gross Income (AGI) greater than $69,000. 

Overview of the IRS Free File. 

  • You can access the tax preparation software on the IRS website.
  • There is no compulsion to make use of any particular provider. The provider chosen by you must be working the best according to your situation.
  • On clicking on the provided link on the IRS website, you can visit the necessary provider. You can check the eligibility criteria and also find out the features offered by each provider.
  • Now, on the creation of an account, the software provider would show you a step-by-step walk through the process of completion of the tax returns preparation and filing.
  • The software would provide you with a set of questions find out tax breaks and provide the best options for tax filing based on the answers you have provided.
  • Every service provider can file the tax returns for you electronically and you would obtain an acknowledgment in the form of an e-mail receipt when the return filing request has been accepted by the IRS.
  • By the IRS Free File, the tax payment can be made free too. However, if you owe taxes to the IRS then the tax payment can be made by the IRS Direct Pay. 

Who can use the IRS Free File? 

  • IRS Free File can be said to be an ideal option for you if you have basic tax situations.
  • The IRS Free File system will provide the most common tax forms; so, if your tax return filing would need to file some obscure tax form then the IRS Free File is not a convenient option for you.
  • You must also be quite proficient in the English language to make an ease-free use of the IRS Free File.
  • Moreover, the processor of your computer and the browser should also be apt for the use of the software. The processor should be the Intel Core 2 Duo 1.8 GHz processor and you must have high internet speed. 

Requirements to start the IRS Free File. 

Some specific requirements must be fulfilled for starting the use of the IRS Free File. 

  1. Your AGI can be accessed by a copy of the previous year’s federal tax returns.
  2. Your valid Social Security Numbers, valid Social Security Numbers for your spouse, and other dependents.
  3.  Receipts of Social Security Benefits and Unemployment Compensation.
  4. Income receipts related to any small scale business if you have and income receipts from real estate, rental, partnerships, trusts, S corporations, etc.
  5. Form 1099-INT to show the interest that has been paid to you throughout the year.
  6. Form W-2s which shows your annual wages obtained from employers.
  7. Form 1099-G for highlighting any refund, credit of State and local taxes.
  8. Form 8962 reflecting the Premium Tax Credit. 

Rights and Protection of taxpayers. 

If you are opting for the IRS Free File method, you would have some of the below-mentioned rights. 

  1. Free Federal Tax Return
  2. Protection from any kind of unnecessary fees
  3. Guidance in making your choices
  4. Protection from the bank product fees
  5. Obtain important information on the charges related to State returns 

Conclusion. 

So, the IRS Free File is a convenient option for tax return filing and tax payment which can be used by the Americans for easy tax procedures.

 

 

IRS assists the elderly for tax counseling in the US.

by | Nov 24, 2020 | IRS, taxes, Taxpayers

IRS assists the elderly for tax counseling in the US.

The IRS (Internal Revenue Service) had very recently awarded more than $36 million for the Elderly and Volunteer Income Tax Assistance Grants for those organizations which help in providing senior citizens of the country with federal tax return preparation. Usually, taxes are difficult for everyone; tax returns, tax credit, property tax, social security tax, etc. make the entire concept of taxes even more confusing. With increasing age, the process of tax preparation and tax return seems to be even more difficult.

 The complex tax rules, changing technology and the lack of proper funds for hiring a professional tax preparer can make the tax preparation and file even much more difficult. So, if you are ageing and finding it difficult to prepare your federal taxes yourself then you can approach the IRS for assistance.

 The IRS offers two great tax preparation programs which the seniors in the country can use:- 

  1. Volunteer Income Tax Assistance (VITA) Program
  2. Tax Counseling for the Elderly (TCE) Program

 Throughout the US, VITA and TCE support centers and programs are located which would be helpful for the seniors. When you visit the IRS website, you would be able to search based on your location that would help you in finding the nearest VITA or TCE program. The IRS would partner with several organizations throughout the US for developing the VITA and TCE programs. These community partners can include faith-based organizations, community centers, non-profit agencies, large employers, etc.  Proper training on tax laws and certifications are provided by the IRS to these community partners for enabling them to prepare correct tax returns.

 Volunteer Income Tax Assistance (VITA) Program.

 The volunteers at VITA are the IRS certified professionals who help old people or disabled people in their tax preparation. The VITA program by the IRS is most suitable for those seniors who have a particular income which can be subject to income tax. Moreover, the VITA Program is also helpful for those seniors who do not have very fluent English skills, earn a higher income, and need professional assistance for tax preparation. The VITA Program was created in the year 1969 and would help the under-deserved communities like low –income and moderate-income individuals in tax preparation.

 The tax professionals at VITA work very hard and help in providing good quality services for the seniors who have low income and would need professional help for the preparation of their tax returns. VITA volunteers would also help in providing counseling on the tax credits that are applicable for reducing the income tax burden. But, there are certain limits on what the VITA volunteers can prepare and cannot prepare. The IRS would suggest that difficult federal tax situations must be handled by paid tax professionals.

 Tax Counseling for the Elderly (TCE) Program.

 Those senior citizens who are not very sure about which tax assistance program they must use can use the TCE Program. The TCE Program was started in 1978 and its volunteers receive proper tax training and technical assistance. According to the laws in 2017, a senior citizen must be 60 years old to qualify for using the TCE Program for tax assistance.  Many seniors in the US have a living which is based on a fixed income and they should use the TCE Program rather than the VITA Program. 

 TCE Program is operated by the IRS certified tax professionals and provides free services to the senior citizens. TCE volunteers make it more convenient for senior citizens by traveling to locations where the seniors can meet them easily such as libraries or community centers, etc.  Several non-profit organizations would administer the TCE Program that functions on the grants given by the IRS.

 Conclusion

So, senior citizens can avail themselves of professional tax aid programs and also be aware of the tax scams that are a common occurrence these days.

IRS Taxes and student loans for NRIs in the US (PSLF).

by | Nov 9, 2020 | IRS, IRS credits, IRS e file Return

IRS Taxes and student loans for NRIs in the US (PSLF).

 With the coronavirus spreading its adversities throughout the world, the entire economy across the world has been impacted. Millions of people in the US have lost their jobs and their economic lives have been impacted very badly. Under these circumstances, the different types of loans taken by the common people can be the reason for increased financial instability.

 Out of the different categories of loans, a student loan is the one that can create a lot of economic problems for the NRIs, especially during these COVID times.

 Public Service Loan Forgiveness (PSLF). 

The Public Service Loan Forgiveness (PSLF) is a federal program on which a lot of people rely to have their balances of Student loan to be forgiven. An NRI would be eligible to avail the PSLF if he can meet the below-mentioned criteria:- 

  1. If you have a direct loan
  2. If you are employed full-time in the public sector
  3. If you are making 120 qualifying payments in a month under an income-driven repayment plan 

Which employment qualifies for PSLF? 

You should be working for the below-mentioned employers to be qualified for the PSLF.

  1. You must be working in Government organizations at any level i.e. US Federal, State, Local or Tribal
  2. You must be employed in a non-profit organization which is exempted from tax under Section 501(c)(3)
  3. You must be employed in AmeriCorps or Peace Corps as a full-time volunteer 

You would not be able to qualify for availing the benefit of PSLF if you are employed in

  • Labor Unions
  • Partisan political Organizations
  • For-profit organizations which include for-profit Government contractors 

Qualifying criteria of private loans for PSLF.

 Student loans that have been taken from private lenders are not eligible to qualify for PSLF. The loans such as Federal Direct Consolidation Loans, Federal Direct PLUS Loans, and Federal Direct Stafford Loans qualify for the PSLF. 

If you are choosing to consolidate your loan, only the qualifying payments that are made on the New Direct Consolidation Loan would be included in the 120 payments that are needed for the PSLF. If any payments are made before the consolidation of the loan then they would not be counted. 

How to apply for PSLF? 

There would be two scenarios when it is related to applying for the PSLF. 

  • 120 qualifying points –

    In case you have already made the 120 qualifying points, then you must fill the Public Service Loan Forgiveness Application to apply.  You can easily find out the application for PSLF and the additional information needed at the Federal Student Aid. 

  • Working for making 120 points-

    In case, you are working pro-actively towards making your 120 points then you should submit the PSLF Employment Certification yearly or if you are switching your employers.

 Taxability of the Forgiven loans. 

Any loan money which is considered forgiven under the PSLF would not be considered eligible for taxation. You would not have to pay any federal tax on the money that has been considered eligible under the PSLF.

 The forgiveness of your Student loan would not affect your tax returns for the year 2020. You would not have to report anything different on your Federal tax return than the normal amount to report a return. However, the amount of interest on a student loan that would be deducted will look different from the normal interest paid.

 CARES Act Relief under PSLF.

 According to the provisions of the CARES Act, all payments which were to be made by the common people to the US Department of Education for Federal Student Loans and accrual of interest were suspended until 30th September 2020. However, the US President extended this suspension date until 31st December 2020 by signing an executive order. If you are having a federal student loan, then you will not have to do anything separately for the suspension of the payoff or interest accrual. But, if you are interested in making the normal payments for the payback of the loan then you can do so.

 Moreover, even though the federal loan repayments have been put on hold but you can still qualify for the PSLF. In case, you are having a Direct Loan and you are employed under a full-time employer during the Suspension period, you would be receiving credit towards the PSLF as if you have made your monthly payments on time.

 Conclusion.

 So, these tax provisions and deductions with the student loans related to the NRIs in the US would help you to have a clear understanding of the tax structure.

 

 

 

Wondering how to get debt-free this year?

by | Oct 31, 2020 | IRS, Tax Extension, tax filing, Tax Planning, Tax Preparation, Tax Refund, Taxtips

Wondering how to get debt-free this year?

This simple guide would help you!!

Repayment of debts can give you nightmares and this entire problem is a vicious circle. With one debt leading to another, the entire process can push you into financial troubles.

 So, it is essential to get rid of your debts soon; however, it seems to be a difficult thing if done without prior planning.

 Let us check out a simple guide which would help you to get debt-free this year.

  • The Essentials

 It’s a consumer world today and it’s the current trend to purchase new and fancy items. You might be having the best of clothes, apparel, and gadgets but you are interested in upgrading them. Expansion of your wardrobe has become a hobby and a passion too.

 Let’s think rationally and put an end to this. It is necessary that you prepare a list of the essential items and only purchase those which are needed. Avoiding unnecessary purchase is the best way to minimize your expenses thus, leading to less debt accumulation.

  • Budgeting and tracking your expenses

 Budgeting is highly essential to keep your finances under control. When you make a budget, know your expenses, and spend accordingly you would be able to save. These savings can be your savior while you are struggling to get rid of your debts. There are various budgeting tools and apps available that can be utilized to keep a check on your income and spending. When you are aware of your spending habit, you can easily find out those areas where you can cut off the spending. The cut-off spending would be used in paying off debts.

 

  • Search for shopping options which are cheaper

 When you are trying to have a debt-free life, it is essential to introduce some changes to your shopping options. You can resort to techniques like shopping in bulk. This would be less expensive. Moreover, for the general household shopping, you can plan to visit the stores once during the month. Your shopping list for essential items would help you in obtaining all the necessary items at once without the need for visiting the stores and also spending again and again.

 If you fill up your cupboards with the groceries, stationeries and other items when they are on sale and then skip shopping each month for at least 1-2 months, you would be able to save quite a good amount. The savings made can be utilized in making your debt payment then you would get rid of your debts in a considerable period.

 

  • Handle your credit card wisely

 You can consider your credit card as a source of cash that would be needed at times of emergency. But, if you are making improper use of your credit card you might be accumulating debts. You should ensure that your credit card is used only in times of emergency. Avoid making payments by using your credit card; rather plan the purchase of items only when you have cash with yourself.

 You should keep on checking the records of your credit card continuously. This would help you in keeping a track of how much debt you have to pay off. Moreover, you must be aware of any fraud schemes which can occur with your credit card.  Also, if you feel that the interest rates of your credit card are too high you can negotiate with your card issuer. If you have had a good history of paying your bills on time then you can expect getting a lower interest rate.

  • Make extra money

 If you decided to get rid of your debts this year, then you must find out other methods to increase your income. You can take up an extra job or work in extra shifts, putting all extra money earned into the debt payment. Once your debts are paid off, you can stop doing this extra work if it is painful for you. Moreover, you can rent out your extra space such as a garage, or room, etc. and use the extra income for paying off your debts.

 

  • Get rid of the expensive debts first

 This is one of the smartest methods to use for getting rid of the debts which you have. You must choose one of those debts of yours which are charging the highest interest. All the extra payments you can do must be focused on getting rid of this expensive debt first.

 Once your expensive debts are paid off, utilize all the money that you were paying for that particular debt in paying off the next expensive debt of yours. By continuing this method, you would be able to pay off all the debts and would be left with the least expensive ones only. You would feel motivated by using this strategy as it helps you in getting rid of the debts quickly.

 However, there is another strategy too i.e. the Snowball Method which is a variation of this method and is also helpful in getting rid of debts easily.

  • Refinancing

 The idea of refinancing your present debts would be of great help in paying off your debts. Several loans come up with attractive rates of interest. Getting that money and using it for paying off your debts would be a good strategy indeed. However, you need to be careful and consider the opportunities cautiously while refinancing.

  • Do not accumulate debts

 The golden rule to become debt-free is to prevent the accumulation of further debts. This process is a vicious circle and it needs to stop. One of the best methods by which you can keep a check on your debt accumulation is by the restricted use of your credit card. Moreover, spending wisely by minimizing your expenses is the best method to stop any further accumulation of debts.

 After you have stopped the further accumulation of debts, you can opt for the restructuring of your installments and payment strategy. By this, you would have a good financial strategy for your debt payment.

Conclusion

So, if you are interested in saving so that your debts are paid off you need to have a mindset change. You will have to think twice before shopping, make smart shopping decisions, and turn down temptations. With a substantial amount of self-control and discipline while dealing with finances you can easily get rid of your debts this year.

References

  1. https://blog.taxact.com/steps-to-become-debt-free/
  2. https://www.nomoredebts.org/blog/money/management/12-ways-to-get-out-of-debt
  3. https://www.thesimpledollar.com/credit/manage-debt/11-ways-to-get-out-of-debt-faster/
  4. https://www.aarp.org/money/credit-loans-debt/info-07-2013/10-steps-to-becoming-debtfree-in-less-than-a-year.html