How the American Recovery Plan Act Could Affect Your 2020 Tax Filing
The American Recovery Plan Act (ARPA) doesn’t sound quite as catchy as the SECURE Act or the CARES Act. But the government’s new trillion-dollar plan to accelerate our country’s recovery from COVID-19 is no less consequential.
In many ways, its effects are going to be more immediate as well. Most folks who qualified for tax rebate checks have already received them. And, as we discuss on today’s show, ARPA’s changes to some aspects of tax law could require swift action for some folks before the extended 2020 tax deadline of May 17th.
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1. More pandemic relief.
If you’re eligible for a tax rebate check and haven’t received it yet, you can work with your tax professional to receive that payment on your tax return.
ARPA also provides a little extra help for displaced workers by extending federal unemployment benefits until September 2021. The first $10,200 of unemployment benefits will be tax-free for 2020, and folks who were involuntarily terminated can also take COBRA benefits at no cost through September 30th, 2021.
Another significant change is that the government is capping health care premiums for folks who buy their own insurance from the marketplace at 8.5% of adjusted gross income. This reduction, coupled with the increased tax credits for children and dependents, could be particularly helpful to families that are still struggling to make ends meet as the country gets back to business.
2. More time to top off your IRA.
The government extended the deadline for filing taxes, in part, because CPAs wanted extra time to help folks make the proper adjustments to their 2020 taxes. Some states that collect income taxes have now followed suit. That means you also have extra time to make 2020 contributions to your retirement accounts. And don’t forget that, thanks to the SECURE Act, folks over 70 ½ who are still earning income can keep making contributions to IRAs as well.
Oddly, the April 15th deadline does still apply to folks who have to make quarterly estimated tax payments. That might be tricky this quarter if you don’t file your taxes before May, so talk to your tax preparer about the best course of action.
3. Two words of warning.
We cover a lot of tax planning specifics in this episode, and while I think it’s worth your time to listen to the whole conversation, I want to make sure that two important points stand out:
One, be aware that there are limits to what the custodian of your financial accounts is going to communicate to your tax preparer in your annual statements. For example, if you made a QCD from your IRA, you need to tell your tax pro about that or you might miss out on some important tax benefits. Ask your custodian or your fiduciary advisor if you’ve made any moves in the past year that need separate documentation.
Two, any time there’s a lot of data moving from point A to point B, you can be sure that scammers are trying to intercept it. Tax season is always a prime target for these crooks, and many of them are looking at the flurry of activity surrounding the pandemic for more opportunities. Just last week a school reopening in Kansas City was hit with a cyber attack that gave students 2 full days completely off.
As you’re downloading your statements and sending personal info to your financial pros, make sure you’re using best practices that will keep you safe online. Don’t open suspicious emails or click on suspicious links, don’t answer any phone calls from fraudsters claiming to be the IRS or Social Security Administration, and always work with reputable professionals.
We know how stressful tax time can be, and ARPA could cause some last-minute headaches for folks. Don’t hesitate to get in touch if we can help.
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Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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