FBAR Deadline Now 10/31/2020 – An Honest Mistake :)

While wildfires and hurricanes were making October interesting, the FBAR deadlines for those affected was extended to October 31, 2020.

However, when the notice was issued, the writer failed to mention that it was only intended for those affected. Sooooo – the deadline was changed for everyone 🙂

What is an FBAR? A US resident or someone treated as a resident for tax purposes who has an interest or signature authority in any foreign accounts (like bank, securities, retirement and others), must file an FBAR when the aggregate value of the foreign accounts exceeds $10,000 at any time during the calendar year.

If this is you and you haven’t filed, give us a shout!

The Payroll Tax Deferral – Just a Short-Term Loan

Recently, the President signed an Executive Order allowing deferral of Social Security taxes starting with pay periods on or after September 1, 2020 until the last pay period ending December 31, 2020. Prior to official IRS guidance that was released this week, the implementation of this Executive Order was vague.

The Order turns out to simply be a deferral, not an exemption like it was presented in the beginning. In other words, what you do not pay now you will have to pay in the first four months of 2021.

Basically, this is the plan- If you make less than 4K bi-weekly (104K a year), you can choose to defer  your Social Security Taxes that you would pay on your income the rest of the year to the first four months of next year (2021). Social Security taxes are 6.2% of your wages so if you make 1K each pay cycle, you can put off paying the $62.50 with each check until December 31 and then pay it back by April 30, 2021. After May 1, 2021, interest and penalties would begin to accrue.

Really just a small, short term, interest free loan.

Should you do it?

Generally, no. First, this puts some employers in a bind as they are now deputized as tax collectors should an employee elect to defer the tax and leave the company before the due date of the payback. Second, the amount is not significant. Even if you did make the maximum of 4K every two weeks, it would potentially be a $1500 liability going into 2021. It is a deferral lasting less than half a year and most people need the loans much longer. Lastly, with all the changes each week with COVID, few people can predict what life will be like on Aril 30.

Will it be forgiven? That is an unknown. Section 4 of the Order instructs the Treasury to “explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.” This is a possibility so for some, it might be worth the gamble. See  https://www.whitehouse.gov/presidential-actions/memorandum-deferring-payroll-tax-obligations-light-ongoing-covid-19-disaster/

Reference: https://www.irs.gov/pub/irs-drop/n-20-65.pdf

Are COVID Assignments Exempt from Social Security Tax?

We have received a number of messages asking if those working temporarily in COVID disaster areas are exempt from Social Security taxes and Medicare taxes (please see image below).

It’s also found here: Tax Withholding for Government Workers

This does not apply to COVID related assignments for two reasons. 1) The page on the IRS website applies to GOVERNMENT workers – working with a staffing agency is not a government employer and 2) these exemption applies to NATURAL disasters, not biomedical disasters.

Congress would have to pass a bill allowing this and right now, they cannot agree which is why you see more executive orders from the President.

Help! If I take a Permanent Job, How Will This Affect My Tax Home?

Life has changed dramatically with COVID, especially life as a traveler, healthcare or otherwise! We’ve had several calls recently from travelers asking: “Due to COVID, travel contracts are scarce, and I’ve been offered a permanent job.  If I take a permanent job outside of my tax home, how will this affect my tax home?”

Taking a permanent job shifts the tax home to that new location unless you have more income from another location. The reality is that you have got to work, and travel contracts are scarce or being canceled, so what do you do? You can take the permanent job for however long you need to; however, your tax home will shift.

If you are planning to go back to traveling after all this blows over, and want to use your previous tax home, then you will mostly likely need to reestablish it.  How do you reestablish that tax home? By earning significant income in the area that is fully taxed. You might ask, what is “significant income”? Well, considering that the traveling life is divided into 3-month intervals and one could work 4 assignments a year. A starting point is 2-3 months of income in that new location.

Free Housing for Front Line Workers

We’ve had this question multiple times in the last 2 weeks. Here is the scenario:

“My pay package includes a housing stipend because I am finding housing on my own. However, hotels are offering free stays for front-line workers, that is not provided by my company or the hospitals. At the hotel I do pay for parking. What will happen to the housing stipend if I accept the free stay at the hotel, considering I have to duplicate expenses?”

The answer is that you will need to duplicate expenses for lodging since the lodging is being provided by a third party. The solution is to pay SOMETHING to the hotel, maybe a tip to the housekeeping staff or for other amenities that they offer that you will use in the room.  Parking does not count as lodging expenses, unless you are a hippie! : ) Under the rules there needs to be SOME expense to trigger the exclusion of the per diems.

Relief for Those Stuck in the US due to COVID

This is for all those individuals and corporations with representatives that are not permanently living in the US but are working in the US temporarily or snowbirding.

A number of filing situations are triggered once an individual has spent more than 183 days in the US. Not every person is affected by this but some have delicate situations that are dependent on spending less than 183 days in the US (for example, FBAR filings, creating a Permanent Establishment etc.).

This week the IRS released guidance for situations where COVID prevents an individual from returning to their home country. Simply put, an individual will be able to exempt up to 60 days of presence in the US beginning at any date between February 1st and April 1st.

Here is the link to the announcement COVID and Days of Presence in the US

Healthcare Travelers – Get Ready for the Recovery

If you are thinking rationally about the COVID crisis, the next step is the slingshot that will occur to make up the delays in elective surgeries and then the baby boom that will come in December/January

Our firm’s home state is already starting the process

Resuming Elective Surgeries in SC

The lesson is that when things are negative, be in the position for the positive and vice versa.

Where to File Unemployment

The most frequent question we get these days is about unemployment – specifically WHERE one applies.

The link below is a good discussion on this. The confusing part is that it doesn’t really use the proper verbiage to address travelers – where one “lives” can be different based on context and travelers don’t “live” at the assignment per se.

The default answer is that you apply in the state you last worked (reporting taxable wages) UNLESS you are an independent contractor – if you are a contractor you apply in your home state. The employer/agency pays into unemployment systems in the state that you are working so that is the first stop. Every state is different so there is no one answer that fits all.

Now, keep in mind that we are tax advisers, not unemployment benefits administrators 🙂 However, having served the contingent staffing industry for 20 years, this is a very common event and filing in the last work state is the normal approach.

Unemployment Insurance Relief During COVID-19 Outbreak

Where to File for Unemployment

I’m Taking a Crisis Contract – How Does That Affect my Taxes?

Several travelers are accepting short term assignments in areas affected by the COVID pandemic. These assignments pay significantly more than regular traveler contracts and are often for a shorter duration than 13 weeks.

What about the taxes?

This is covered in other posts on our blog, but there are three things to note:

1) What is withheld from your paycheck for taxes is not the actual tax – it is an estimate of the taxes owed on the income you earned during the pay cycle.

2) The tax withholding will be higher in percentage terms since the calculation of the withholding ASSUMES you will earn the same amount each paycheck for the remainder of the year

3) The reality is that you will not earn this much with each check all year.

This leaves you two choices: You can either change your withholding short term or just let the withholding run the normal rate. If the later, any tax payments that are more than needed will be refunded when you file your return the following year.

Here is an illustration:

Jane normally earns 50K a year but has an opportunity to earn 7500 a week for 4 weeks on a crisis contract. She will earn 30K during the 4-week assignment, but 80K for the entire year (50+30). The tax withholding on the crisis contract will ASSUME she makes 7500 a week or 390K a year. 390K vs 80K is a big difference but it shows you why the withholding is so high.

What should your withholding be if you want to adjust it? Everyone’s situation is different so this will not work for everyone. Whatever you decide, DO NOT FILE EXEMPT. The one approach you can use is as follows using Jane as an example:

• Calculate the amount you would earn if you worked the crisis shift all year (390K)
• Subtract the amount you expect to earn during the crisis contract (30K)
• Subtract from #2 the amount you expect to make at your REGULAR jobs (50K)
• Subtract 20K
• 390-30-50-20= 290K
• Put this amount on Line 4B on the W4 Withholding Form

The 20K is a buffer should your expectations change and if you linger longer, you will want to adjust your W4 again.

This takes care of the Federal withholding. Every state is different, but if they use the old formulas that ask for EXEMPTIONS, claim Single and 5 or Married and 5.

And finally, after you are done with the crisis contract, CHANGE the withholding back to where it was before you started. AND, be safe!

A Short Overview of the Stimulus Payments

Stimulus Checks will be issued soon, and our office has received several calls concerning the when, how and why. Here is what you need to know:

• The stimulus payment is a 2020 credit that will be reconciled on the tax return filed in 2021 for the 2020 tax year – IT’S NOT TO BE PAID BACK! 🙂 IT’S FREE MONEY!
• It is a maximum of $1200 for singles, $2400 for married taxpayers and then $500 for each child
• The payment phases out for Singles earning more than 75K, Married earning more than 150K and those filing Head of Household earning more than $112,500
• The payments are being sent in advance based on the return filed for 2019
• If the 2019 return has not been filed, it will be based on the 2018 return
• If neither the 2018 nor the 2019 return has been filed, you will want to file soon
• If you do not get all the stimulus, you may receive it when you file the 2020 tax year return in 2021
• Currently, the IRS is requiring all individuals to file a return to receive the stimulus, yet the law that was passed does not require that. The IRS has announced a special return for those that do not regularly file. Details are forthcoming
• If you have provided a direct deposit account on your 2018 or 2019 return, the payment will go to that account.
• The IRS will provide a database and web site that will allow you to change the account identification number if necessary.
• The IRS has provided a web page with FAQs: https://www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know

There is considerable confusion over these rules and an unnecessary rush to file 2019 returns when the 2018 return is sufficient. If you have not filed in 2019 and show more than the allowed income on the 2018 return, that would be a reason to file sooner provided the 2019 return income is eligible for the payment. If both returns show disqualifying income, you still have another chance when you file for 2020.

For a YouVideo explanation see: https://youtu.be/9lr-7oGdhGk