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Look Back At Stimulus Checks And US Economy 2021

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The one thing which most of us wish to do is put the past 2 years majorly in the rearview mirror. It is since 2020 March that all around the world have been absorbing the impact of covid-19. This not just affected us physically but also financially and emotionally. So, with the 2nd year ending, it is better to review the same.

Look Back At Stimulus Checks And US Economy 2021

What’s the big picture?

It is after the worst of recession and depression the economy has shrunk by 3.4%. Even recovery in 2021 came to fruition. Furthermore, it is quite likely that the economy of the U.S. also shows an expansion of approx. 6%. It was fueled by the 3rd stimulus check by the government. It was provided in the American Rescue Plan of $1.9 trillion, as per the Times and Democrat news.

In 2020, two measures also got enacted,

  • March 2020- Cares Act $2.2 trillion
  • December 2020- Relief bill of $900 billion 

Stimulus checks of $1400 were delivered under 2021 legislation. Even child tax credits were offered to millions. Apart from government support, even the Federal Reserve ensured maintaining emergency measures. These measures include buying monthly bonds and the 0% interest rates for greasing financial and economic market wheels. With the proper combination of monetary actions and fiscal actions, the U.S economy in 2021 got poised to see the strongest growth rate since the year 1984. In 1984, the GDP surged by around 7.2%.

Dynamics of Covid

The recession due to covid was unique. The output drop was swift and severe. The households sat on excessive cash of around $2.4 trillion in extra savings. After lockdowns got lifted, the Americans, were ready for unleashing consumptive habits. The producers got surprised due to rapid spending. Soon, there were changes within the supply chain, logistics, and shipping containers.

The new black- Inflation

The economy of America is not even close to peak inflation which was seen in the year 1980. In that year, the price accelerated by around 13.5%. The prices measured by Consumer Price Index were at the annual pace- 6.8% in November. It was the strongest annual pace in 4 decades, as per the Times and Democrat news.

Labor market shortage and great resignation

With the year progressing, the workers were in the new power position. The job openings were abundant. It happened 1st time in 2 decades. According to many, the labor market was chaotic, but they had the leverage for using it to their advantage.

Housing

According to Times and Democrat news, the housing market, it finished a little less hot. However, it was simmering because of the low inventory level. 

The unfortunate news is that, even when the activity slowed down, the price was high. With more properties within the market, it is hoped that the situation will improve.

 

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Child Tax Credit

Experts Predict Long Payment Delays From IRS This Season, Provide Few Tips To Speed Up The Process

David Crabtree

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The IRS faces an enormous backlog due to staff shortages amidst the pandemic, it has recruited new officials, but the challenge remains tough. IRS is yet to process millions of tax returns of last season. The IRS officials are crushed under a ton of paperwork; millions of taxpayers will file their returns this year. The authorities will need to devise a compact strategy to overcome the backlog. CNBC reports that IRS had 6 million unprocessed returns by December 31, this is large numbers, and 2021’s tax returns might take some time.

Experts Predict Long Payment Delays From IRS This Season, Provide Few Tips To Speed Up The Process

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IRS Workers Are Sparse

Experts suggest various ways to slim the time lag between filing the returns and receiving the payments. CNBC reports that the IRS only had 15,000 workers to answer around 24 million customer calls during the first six months of 2021, one person for 16,000 customers. Experts suggest taxpayers avoid the paperwork to the maximum extent; filers can switch electronic modes to fast forward the documentation. Taxpayers need to use advanced features to process tax refunds and other pending payments quickly. The electronic method will ease the burden on IRS officials during data verification.

Taxpayers Should File Electronic Tax Returns

IRS quoted Erin Collins, the National Taxpayer Advocate; she said, “Paper is the IRS’s kryptonite, and the agency is buried in it. The IRS still transcribes paper returns line by line, number by number, they received around 17 million original paper returns last year, and the processing delays have run as long as 10 months.” The taxpayers need to recheck their tax returns thoroughly; the wrong information might lead to payment abortion and several lengthy delays. The officials, too, will have to go through the same twice or thrice, which makes the process more complicated.

The families who receive enhanced Child Tax Credit or Stimulus payments or both need to exercise extra caution while filing their returns; the IRS issued letters to provide data for the amount allocated. The beneficiaries for the remaining half of the Child Tax Credit payments or extra credit should give complete information in their tax returns. IRS has announced April 18 as the deadline; individuals need to complete the filing process before the date.

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The $8,000 Child Tax Credit Is Unknown To Many Parents

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The federal Child Tax Credit is well-known among American families with children, as parents of nearly 60 million youngsters received advance payments last year. However, there is another tax advantage for parents that is not so well-known than the CTC but can be even more generous, with up to $8,000 in tax credits available in 2022.

The Child and Dependent Care Credit isn’t completely new; it’s been around since the 1970s and was designed to help working parents offset the costs of daycare, after-school courses, and summer camps.

However, child care costs had not kept up with the credit, with the child advocacy group First Five Years Fund noting in 2018 that it only took into account around 10% of the average annual cost of caring for two children in the United States at the time.

Several tax benefits accrued for Americans as a result of the American Rescue Plan, including a large extension of the Child and Dependent Care Credit. Parents can now receive a tax credit of $8,000, nearly four times the previous limit of $2,100.

In comparison, the increased Child Tax Credit provides $3,600 for children under the age of six and $3,000 for children from 6 to 17.

Robbin Caruso is a partner in Prager Metis’ National Tax Controversy Practice. “They’re realising the rising expense of child care in our society,” she continued, “and it’s a huge opportunity for taxpayers that shouldn’t be passed up.”

The fact that it’s also fully refundable is critical since, according to experts, it might boost many parents’ tax refunds this year. Tax credits lower a person’s tax burden dollar for dollar, whereas deductions reduce a person’s overall taxable income.

As a result, tax credits like the Child and Dependent Care Credit are more useful to taxpayers than deductions, and they become even more attractive when they are fully refundable.

Claim $8000

The maximum tax credit available to Americans is $8,000, which applies to families with two or more children.

Families can now claim a credit worth half of their child care costs, up to $16,000 for two or more children, under the extended tax break. In other words, under the enhanced tax credit, families with two children who spent at least $16,000 on daycare in 2021 will receive $8,000 from the IRS.

Parents could only claim 35 percent of a maximum of $6,000 in child care costs for two children before the American Rescue Plan, or a maximum tax credit of $2,100.

Parents with only one child can claim up to $8,000 in child care expenses.

 

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Muni Bonds Come With Higher Medicare Premiums During Retirement

David Crabtree

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Municipal bonds are a primary choice among investors to evade taxes. The muni bonds can incur higher Medicare deductions from the post-retirement income. Individuals should be aware of the pros and cons of investing in muni bonds. CNBC reports that President Biden announced a probable increase in tax rates; this led to a higher demand for these bonds. The US muni mutual and ETFs are worth $96.8 billion at present. The government has not entertained the idea of a tax surge. However, the bonds still draw investors’ interests due to several unique attributes.

Muni Bonds Come With Higher Medicare Premiums During Retirement

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Several Individuals Opt For Muni Bonds

Due to unexpected Medicare costs, the muni bond investment can be a bane for many investors. CNBC quoted Matthew Chancey, certified financial planner at CostalOne, who said, “There are a lot of moving parts, and you need to have someone look at it holistically.” The retirees should consider the higher Social Security tax and Medicare deduction before being awestruck by their high returns and present tax stability. CNBC reports that retirees with the Social Security payments and modified adjusted gross income (MAGI) above $44,000 (for joint filers) and $34,000 (for individual filers) are taxable for more than 85% of their Social Security income.

Medicare Premium Will Increase For Retirees Above MAGI Threshold

CNBC states that the Medicare Part B premiums have witnessed a 14.5% increase, to $170.10 per month. The threshold MAGI for retirees is $182,000 and $91,000 for joint filers and individual filers, respectively. Retired couples with MAGI above $75,000 will have to pay $578.30 under Medicare premium. The reports suggest the retirees may suffer more due to the increase in Medicare Part D, including prescription medicines. In the higher income bracket, retirees will have to pay $77.90 per month in 2022. The retirees need to calculate the deductions before investing in the bonds.

CNBC quoted Mary Kay Foss, certified public accountant and CPA faculty at CalCPA Education Foundation in Walnut Creek, California, who said, “It’s something that taxpayers seem so aware of because if they get into this higher bracket, they have to pay higher premiums for a full year.” Experts suggest that retirees should not give up on muni bond investment; instead, they need to consider all sides of the coin before getting their hands into it.

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