Personal finance news summary: Sunday 20 March 2022
Personal money and finance: live updates
Headlines:
- Most Americans have until 18 April to file their federal tax return
- No extension expected this year (full story)
- Federal Reserve this week raised interest rates for first time since 2018
- Unemployment insurance claims down in March
Useful information
- How long does your federal tax return take to be processed?
Related news articles:
Is there a 1040-EZ form 2021?
Short answer is no, there isn't.
The 1040-EZ was a shortened version of the Form 1040 designed for Single And Joint Filers with No Dependents and basic tax circumstances. It was introduced in 1982.
With the redesign of the standard 1040 form, the IRS decided to get rid of the 1040-EZ as of 2018.
Individuals who met the 1040-EZ requirements now file the standard 1040 form (or have the option to file the 1040-SR for seniors, if they meet the requirements).
Why is the 1040 form called 1040?
Form 1040, (full title: U.S. Individual Income Tax Return) records the total taxable income of an individual and calculates how much federal income tax is to be paid.
In a 1985 New York Times article, a couple of theories are noted about how the form got its number, both based on a year. Either 1040 BC when the prophet Samuel gave in to the people's demands for a king, but warned them their ruler would demand taxes. Or 1040 AD, in which Lady Godiva, an Anglo-Saxon noblewoman, protested taxes as she rode through he streets of Coventry.
Alas, neither fanciful tale is true. This is a tax authority after all, who do things by the book, and the number 1040 was chosen as it was the next available number in the forms control numbering system, as IRS Commissioner Roscoe Egger explained back in '85.
Tax credits and tax deductions
Did you know that although tax credits and deductions both decrease what you'll pay in taxes, they do it in different ways?
Tax deductions lower your taxable income and potentially reduce what you'll pay in taxes as a result, while tax credits reduce your tax bill dollar for dollar and may even increase your refund.
Want to know the detail, check out this summary by Experian.
Federal Resrve rate rises "will crack the US economy"
American investor and fund manager Bill Gross has warned that further interest rate rises would hurt the US economy. Last week, the Federal Reserve hiked rates by a quarter-percentage-point - the first in what some analysts believe will be a series of small increases this year.
Gross told the Financial Times that the Fed won't be able to reel in inflation by raising interest rates even further and argued that steep rises could ruin those who are paying off a mortgage. "I suspect you can’t get above 2.5 to 3 per cent before you crack the economy again," he said. "We’ve just gotten used to lower and lower rates and anything much higher will break the housing market."
Puerto Rico to reap benefits of Biden's American Rescue Plan
The American Rescue Plan is expected to bring at least $23.5bn to Puerto Rico while more support will be on the way through the Infrastructure Investment and Jobs Act. It is estimated that Puerto Rico's economy will grow by 0.5% a year on average through 2030 how much will hinge on whether the aid can half the steady decline in population - from a peak of 3.8 million inhabitants in 2004, the population has declined by 16.5%. Reversing the brain drain will be the first step to Puerto Rico's resurgence, The Economist reports.
Closing the gender pay gap is not just a moral issue - VP Harris
US vice-president Kamala Harris says that reducing the pay gap between men and women is not only a moral issue but an economic one. Speaking at last week's Equal Pay Day Summit, Harris said, "And as study after study has shown, women are expected to shoulder an unequal share of unpaid caregiving responsibilities. And here’s how that all adds up: Today, on average, working women who are working full time, year-round, make just 83 cents for every dollar that a man makes. As one must recognize, lower wages mean working women have less money — less money to save today. And lower wages mean they receive lower Social Security benefits in their senior years. For so many women, the gender wage gap acts as a virtual tax, making it so much more difficult to pay the bills and invest in their future. As the business leaders here today will tell us, closing the gender wage gap — it’s not just a moral issue, it’s also a business one.
"If we are going to continue to grow our economy and to be competitive and lead the world in the 21st century, we simply cannot afford to leave half of our workforce behind. To build an economy that works for all of us, we must build an economy that works for women".
"Every Pennsylvania worker deserves paid sick and family leave. Let's get it passed. The only reason why we don’t have a higher minimum wage in Pennsylvania is because our Republican legislature hasn’t sent a bill to my desK".
Tax resources for Pennsylvanians
Through the Expanded Child Care Tax Credit, families can claim up to $4,000 per child or $8,000 per family for care expenses such as Center-based care; family, home-based child care; babysitters, relatives, neighbors, or friends; and before- or after-school care, and summer or vacation day camps. A reminder that proof of payment and the Tax ID of the person or business paid will be required.
Pennsylvanians can find out if they are eligible and how to claim through the online COMPASS portal
Declaring gig economy income, virtual currency, income and assets abroad
Income earned from the gig economy is taxable and must be reported when you file your taxes with the IRS - even if the income is from part-time, temporary or side work, and regardless of how it was paid - by cash, property, goods or virtual currency.
Taxpayers may also have to fill in details of any virtual currency transactions they might have performed. This can be done in the section at the top of Form 1040 and Form 1040-SR.
A US citizen or resident alien's income is generally subject to US income tax, regardless of where they live in the world. Income, such as wages and tips, from sources outside the United States must be reported when filing tax returns. Taxpayers are allowed an automatic two-month extension - until 15 June if both their tax home and abode are outside the United States and Puerto Rico.
IRS urges Americans to file electronically
To avoid delays in having their return processed, the IRS is urging US taxpayers to file electronically this tax season. This is because, unlike paper returns, electronic returns do not have to be processed by hand.
The IRS is also calling on Americans to seek their tax refund - if they qualify for one - via direct deposit.
The expanded Child Tax Credit has not been sent out since the middle of December 2021. There is no movement from the Democrat wing of Congress on which parts of Biden's Build Back Better plan are negotiable. However, Republicans could end up doing the job for the Democrats by proposing an alternative that is likely to garner support from both sides of the aisle.
US "will be cast backward as a nation" without Child Tax Credit
Writing in the Las Vegas Sun, Las Vegas resident Cassandra Jones has urged Congress to renew the extended Child Tax Credit, which expired at the end of December.
Passed as part of the American Rescue Plan in early 2021, the scheme gave qualifying parents payments of up to $300 per month per child between July and December.
"Last year, the extended child tax credit brought in $750 per month for my three children and helped us cover the bills, but now I worry about staying afloat in this economy,” Jones says, amid rocketing inflation in the US.
“Families need the monthly tax credit to be renewed in 2022. We saw 4 million families set to rise above poverty because of this program and now, without the monthly payments, we will be cast backward as a nation.”
Jones continues: “As of Jan. 4, I became a newly licensed teacher. From September to October 2021, I was working as an unpaid intern in order to make this transition happen. It was during this time that the tax credit really shined brightest.
“I was able to focus on developing my career without worrying whether I could put food on the table those months.
“Having a reliable payment each month to bridge this gap gave me the confidence to continue my journey in teaching, knowing that my children wouldn’t go without the basic necessities like rent, transportation or food.”
The US federal government has sent out three stimulus checks during the covid-19 pandemic.
Will the IRS extend the tax deadline in 2022?
Tax day, 18 April, is approaching quickly and after taxpayers have been offered an automatic extension the last two years, many are wondering if another may be coming.
Last year the tax deadline was extended because of the passage of the American Rescue Plan (ARP). The ARP made several last minute changes to the US tax code and the IRS needed some times to adjust their operations. In 2020, the deadline was pushed back because of the uncertainty surrounding the pandemic that the country was experiencing in March of that year.
To date, no extension has been announced and none are expected as there are not significant changes to the tax code or other disruptions that require a nationwide extension.
We're in the middle of tax filing season, and understanding how much tax you pay depending on your filing status is important.
There is some positive news for the US economy as unemployment claims are at their smallest for 52 years.
Personal money and finance news: welcome
Good morning and welcome to our live blog for Sunday 20 March, bringing you the latest US-focused financial news.