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Social Security Tax Deferral May Change Your Withholding – Did You Know?

An Executive Order issued in August allows U.S. employers the option to defer collection of the employee's share of Social Security tax between September 1, 2020 and December 31, 2020. The employee's share of this tax makes up the majority of paycheck withholding labeled as F**A on most worker pay stubs.

Importantly, the Executive Order only authorizes DELAYED collection, rather than an actual reduction or temporary elimination of the tax. Most employers that choose not to withhold Social Security tax during the specified four-month period will need to collect the deferred tax through extra withholding after January 1, 2021. In other words, employees of these companies will have less money withheld from their paychecks this fall (resulting in increased net pay), but their net pay may decrease for several months after January 1 due to makeup withholding.

For this reason, many employers have opted to continue withholding all F**A taxes as usual. The simplest way to determine whether your employer might be deferring Social Security tax collection is to save your pay stubs from August, and compare them to your pay stubs during the fall. If you see no significant change in your F**A withholding and net pay, then your employer has most likely opted out of delayed withholding.

On the other hand, a decrease in the withholding amount and increase in your net pay may indicate that Social Security tax has not been withheld. You can check with your company's payroll department to make sure. Some companies may offer employees the choice to individually opt out of deferred withholding. However, under the Executive Order, deferred withholding may be mandatory for military and federal government employees with incomes below specified limits.

If your Social Security tax withholding is delayed under this program, you may wish to take steps now to prepare for a potential increase in withholding and decrease in net pay during early 2021. For example, you could set aside the extra money you receive each pay period this fall as savings. A professional tax and financial advisor can help you explore other options to ensure that you are prepared for any possible upcoming changes to your net pay.

Lifetime Learning Credit – Did You Know?

The IRS Lifetime Learning Credit (LLC) can offer substantial tax savings for students or their parents, especially for students who have previously completed four years of higher education. If you paid tuition and school fees in 2020 for yourself, your spouse or a dependent, you may be able to claim an LLC of up to $2,000 on your 2020 tax return. Generally, you may only claim the credit for one member of your household per year.

Students currently taking post-secondary education classes at eligible higher learning institutions may qualify for this credit by meeting BOTH of the following criteria:

- They are or were enrolled in higher (post-secondary) education classes for at least one 2020 academic period. An academic period can be a semester, quarter, trimester, summer session, or any other coursework session defined by the school.
- The student is taking these higher education classes in pursuit of a degree or other recognized certification, or to acquire or improve job skills.

In addition, the taxpayer claiming the credit (usually the student or the student's parent or guardian) must meet the program's income restrictions. Taxpayers with a modified adjusted gross income (MAGI) of $58,000 or less ($116,000 or less for joint filers) generally qualify to claim the full credit. Taxpayers with a MAGI between $58,000 and $68,000 ($116,000 and $136,000 for joint filers) may receive a reduced credit; those with higher incomes cannot claim the LLC.

Although the LLC may only be claimed once per tax return, there is no limit to how many times students can qualify for the credit during their lifetimes. Before claiming the LLC for a student in your household, however, check whether the student qualifies for the American Opportunity Tax Credit (AOTC). The AOTC has higher income limits and a higher maximum credit amount ($2,500). In addition, unlike the LLC, the AOTC may be partially refundable if your tax is reduced to less than zero.

For students who do not qualify for either the AOTC or LLC, it may still be possible to claim an above-the-line income deduction for tuition and fees. A professional tax advisor can help you determine your eligibility for these valuable education tax credits and deductions.

IRS Extends Deadline to Register for Stimulus Payments – Did You Know?

The IRS has extended the deadline for some Americans to register to receive their 2020 coronavirus Economic Impact Payments (EIPs, also called stimulus payments). The new deadline of midnight on November 21, 2020 primarily applies to those who are not required to file federal income tax returns, and also have not yet registered for or received their EIPs.

Those who meet these criteria are urged to use the IRS online non-filers registration tool (link below) to submit their information and receive their EIPs as soon as possible. Choosing the direct deposit option will speed up the payment process. Generally, those who do not provide banking information for direct deposit will receive their stimulus payments by check.

Note that for most people who are required to file a 2019 tax return but requested an extension, the deadline to file remains October 15. Federal return filers who qualify for EIPs generally receive their payments automatically; no separate registration is required.

Beginning two weeks after they register to receive a payment, those who qualify for EIPs can track the status of their payments by using the online Get My Payment tool (link below).

IRS EIP Registration Tool for Non-Filers: https://www.irs.gov/coronavirus/non-filers-enter-payment-info-here

IRS Get My Payment EIP Tracking Tool: https://www.irs.gov/coronavirus/get-my-payment