COVID-19 Weekly Digest (August 12, 2020)
Even though unemployment still remains high, and the US economy took a nosedive during the second quarter of 2020, US households managed to decrease their overall debt for the first time in six years. Even in the face of unemployment, credit card debt dropped by $76 billion during the second quarter as households cut back on non-essential spending. In the first six months of 2020, consumers reduced their credit card debt by $110 billion, the largest decreases since the New York Fed began tracking this in 2003.
Here’s more good news: although the US just crossed the mark of five million cases of COVID-19, overall cases seem to be declining across much of the country, as this interactive map from National Geographic shows.
We’ll take all the good news we can these days, but in the meantime, here’s some information to help you stay safe, productive and healthy.
CARES ACT UPDATES
Cares Act 2
With Congress deadlocked over the next stimulus package, President Trump signed a series of executive orders on Saturday, August 8. Under those orders:
Payment of payroll taxes by employees earning less than $104,000 per year is deferred between September 1 and December 31 of this year.
Additional unemployment benefits of $400 per week will be paid through December 6.
Housing officials should seek to minimize evictions as far as they are able.
Student loan payments are deferred with zero interest until December 31.
However, as Heather Long, economics reporter for the Washington Post, points out, these executive orders may not accomplish all that they claim to. For example, the moratorium on evictions that expired on July 24 was not extended, but rather housing officials are requested to consider whether a ban on evictions is appropriate, and whether additional funds can be made available to help renters.
The executive order to defer payment of payroll taxes will increase take home pay of workers for the last four months of the year, but because payment is postponed, employers may be concerned about paying that bill when it comes due. Some employers may continue to withhold all taxes out of fear of a looming liability.
Funding of the continued unemployment benefits of $400 per week will be split between the federal government and the states, with the states picking $100 of the payment. However, many states may not have the financial resources to participate in the program.
Economic Impact Payments (aka Stimulus Checks)
For those who received the wrong amounts in their stimulus checks, advice from the IRS has so far been to resolve this on the 2020 tax return. However, the National Taxpayer Advocate, Erin M. Collins, has been urging the IRS to find procedures to help taxpayers resolve this sooner. The IRS has agreed to help taxpayers in five specific situations and will send the additional payments via check, direct deposit or debit card as appropriate. Here are the five scenarios:
Scenario #1: Eligible individuals who used the Non-Filer Tool and claimed at least one qualifying child but did not receive the qualifying child portion of the EIP. The IRS will issue supplemental EIPs with respect to those qualifying children in the coming weeks.
Scenario #2: Eligible individuals who filed Form 8379, Injured Spouse Allocation (or can complete and return the Form 8379), and did not receive their EIP. The IRS will issue the injured spouse’s portion of the EIP in the coming weeks.
Scenario #3: Eligible individuals whose EIP was based on a 2018 or 2019 tax return where the IRS adjusted the return for a math error that negatively impacted the original amount of the EIP (e.g., Qualifying Child, Adjusted Gross Income, filing status). The IRS can work with the taxpayer to resolve the math error and, if appropriate, issue a payment for the additional EIP amount.
Scenario #4: Eligible individuals who were victims of identity theft and did not receive an EIP or did not receive the correct EIP amount. The IRS will adjust the EIP once the identity theft issue is resolved.
Scenario #5: Eligible individuals who did not receive an EIP because they filed a joint return with a deceased or incarcerated spouse and their EIP payment was not issued, was returned, or was canceled. The IRS will recalculate the EIP and issue it only to the non-deceased/non-incarcerated spouse.
The Tax Advocate Service will begin accepting cases that fall into these categories starting on August 10.
Paycheck Protection Program (PPP)
The SBA released a set of FAQs covering forgiveness issues for the PPP. Here are some of the issues they cover:
Sole proprietors, independent contractors and self-employed individuals who had no employees when they applied should use Form 3508EZ for their applications.
How to determine payroll costs for owners of C and S corporations, sole proprietors, partners and LLC members.
Clarification of the types of non-payroll costs eligible for forgiveness.
How to calculate loan forgiveness amounts when employee salaries or hourly wages have been reduced.
As long as the application is submitted within 10 months of the end of the covered period, PPP recipients will not be responsible for payments of principal or interest on any forgiven portions. Interest will accrue on any unforgiven portions, beginning with the date the funds were received.
Eligible payroll costs include bonuses, tips, commissions and hazard pay.
According to the SBA, these FAQs can be relied upon to calculate forgiveness amounts. Starting this week, PPP recipients can apply for loan forgiveness.
TAX ISSUES
Whenever a person’s work or income situation changes, it’s wise to check in with a tax advisor to help minimize tax time surprises. Recipients of unemployment benefits may not be aware that those payments can impact their tax status in two ways. First, those payments count as taxable income, but recipients don’t always request that federal and state income taxes be withheld, and may not be aware that they may need to. Second, while unemployment benefits are subject to income tax, they do not count as earned income for the purposes of the earned income tax credit. This means that even if income remains stable, tax refunds may be smaller than expected.
LIVING WITH AND AFTER THE PANDEMIC
Staying healthy
As the pandemic continues with no sure end in sight, staying healthy becomes more of a priority. Evidence from research and anecdotal experiences indicate that mask-wearing can reduce virus transmission and help keep everyone safer. However, despite precautions, people still fall ill and a timely diagnosis can be hampered by the various ways that the virus manifests in different individuals. Some have a fever and severe respiratory problems, while others have gastrointestinal distress, or perhaps blood clots. Many describe losing their sense of taste, while others mainly experience debilitating fatigue.
Work in the post-pandemic world
Between January and April, the share of people opting to retire rather than return to work increased by 7%, according to a University of Chicago study. Some of those retiring early are in occupations such as teaching, medicine or restaurant work that require a high level of personal contact, so they are choosing to do so out of fear of being exposed on the job.
Younger workers, however, are being challenged by the pandemic in other ways. Nearly one in three millennials and Gen-Zers report a financial impact, and 37% report a decline to their mental health. Older generations, in contrast, have the benefit of more financial resources plus the resilience that comes from experience.
