December 2, 2022

Did You Sell an Old Desk Online? You May Receive a Tax Form.

The change is not meant to apply to people who are receiving payments as gifts or as reimbursements from friends after splitting the cost of a restaurant meal, said Erin Collins, the national taxpayer advocate, who heads an agency within the I.R.S. that assists taxpayers. But some people could mistakenly receive forms anyway — say, if they get payments mislabeled as business transactions rather than “friends and family” payments, she said.

“The change is going to cause confusion,” Ms. Collins said.

Mr. Walters of Blucora said he might be among taxpayers receiving a 1099-K. He likes to attend concerts, he said, but sometimes his plans change. “If I can’t make it to the concert,” he said, he sells the tickets on StubHub, which is among the online marketplaces that have alerted users to the new rules.

Here are some questions and answers about the new 1099-K rules:

If you use payment apps, Ms. Collins said, remind those sending you personal payments to designate transactions as such, and make a note of what the payment was for. Venmo and its parent, PayPal, allow users to designate transactions as personal or for purchases. Payments are tagged “friends and family” by default when money is sent between two consumer accounts, the company says, but users can choose the “goods and services” button when making a purchase. Only payments sent with the toggle on are tagged as goods and services for the recipient.

Cash App says on its website that users with standard, personal accounts won’t receive the forms and that only users with business accounts will have transactions reported to the I.R.S.

Sellers should gather receipts or other documents that show the original cost of items they have sold, Mr. Walters said. TaxAct has teamed up with eBay to help users understand the new requirements.

If you do get a 1099-K in January, don’t ignore it, said Tom O’Saben, director of tax content and government relations at the National Association of Tax Professionals. If you think it’s in error, you can request a correction, though that takes time and may delay you in filing a return.

If the amount isn’t taxable, you generally don’t have to report it on your return, accountants say. But make sure you have records to prove that, Mr. O’Saben said, because you may get a letter from the I.R.S. asking for documentation.

Article source: https://www.nytimes.com/2022/09/30/your-money/online-marketplaces-1099-k.html

Confused by the New Mortgage Gimmicks? Here’s a Guide.

More people are turning to adjustable-rate mortgages, or ARMs, which start out with a lower, fixed rate for a set period — say, five or 10 years — and then adjust to a variable rate. That makes them riskier, but it appears to be a risk more people are willing to take. As of Sept. 9, nearly 11 percent of mortgage locks — that is, when applicants lock in a particular rate — were for ARMs, up from 2.5 percent a year earlier, according to Black Knight, a data firm that tracks the mortgage market.

The average rate on a five-year ARM was 5.3 percent (with a fee of 0.4 percent of the mortgage amount), or more than a full percentage point below the average rate of 6.7 percent on a 30-year fixed loan (with 0.9 points) for the week ending Sept. 29, according to Freddie Mac. On a $400,000 loan, that’s $360 in monthly savings.

A longer fixed period is a safer bet, giving borrowers more time to accommodate their life plans before the loan resets at the higher, variable rate. It also means that rates could fall enough that it would make sense for a buyer to refinance to a fixed-rate loan.

Interest-only loans work just as they sound. Borrowers pay only interest for a set period, usually up to 10 years, resulting in a lower monthly payment. After that, the payments jump because they include both interest and principal, just as a typical mortgage does, except over a shorter remaining term. But, because these are typically structured as adjustable-rate mortgages, the rate is fixed during the interest-only period and variable thereafter.

Such loans become especially dangerous when they are used to buy a home that would otherwise be out of reach for a buyer, which is exactly what happened during the run-up to the financial crisis. Borrowers piled into these and other risky loans, and when the housing market plunged, many people were left holding mortgages worth more than their properties, and with payments that they could no longer afford.

Now, these loans are largely used by more affluent homeowners to manage their cash flow, giving them the flexibility to pay down principal when they receive cash from a bonus or a commission, for example.

It is challenging to make apples-to-apples comparisons when shopping for a mortgage given the points and fees charged in addition to the underlying rate, but there are a few ways to make it easier. If you want to get quotes from three lenders, you’ll need to clear enough time to make the inquiries on the same day. If you spread them out over several days, rates may change.

Article source: https://www.nytimes.com/2022/09/29/your-money/mortgage-guide-home-buying.html

The Discount Data That Some Colleges Won’t Publish

Many people qualify for need-based financial aid, but most schools can’t afford to meet every family’s full need. Section H2 of the C.D.S. tells you how much of the need, on average, a school is able to meet. Families often end up filling any gap with student or parent loans.

Parents whose kids get in but find that a school meets even less of their need than average can appeal the financial aid offer. And if the school’s average gap seems particularly foreboding before application season begins, you can have a conversation with the financial aid officers. Ask them how they assess your odds of getting a decent amount of aid — and ultimately being able to afford the place at all.

Then there are the higher-income families. Plenty of people with household incomes of, say, $300,000 won’t qualify for much need-based aid, if any. Still, they may not have much college savings for their offspring if they’ve been repaying their own student debt for decades, and they may not feel able to afford a college’s full price or be willing to borrow a lot of money to do so.

That’s where Section H2A comes in. The technical description of what schools are revealing here is “institutional non-need-based scholarship or grant aid.” My translation is this: “Here’s how many discounts we issue to people who have the ability to pay, at least according to our financial aid calculations, but lack the willingness to do so.”

This is the so-called merit aid that so many schools give out nowadays. At lots of schools, nearly everyone gets something, and the C.D.S. lists the average amount of merit aid that people with no financial need end up getting.

The next step might be to use the form to find the number of people who get need-based aid and then the number who receive no-need merit. Add those together and subtract the sum from the total number of students, and you can figure out how many — or how few — people are paying the full price.

Article source: https://www.nytimes.com/2022/09/24/your-money/college-common-data-set-merit-aid.html

Inflation May Save You Money on Your Taxes

“If it wasn’t adjusted, they would say, ‘What the heck happened on my tax return?’” he said. “That’s a big tax increase.”

To avoid bracket creep, the government began adjusting, or indexing, tax brackets for inflation in the early 1980s, after a long period of raging inflation.

Daniel T. Massey, a principal with Walz Group, an accounting firm in Lititz, Pa., said people whose income had kept pace with inflation would see no change in their tax bracket, while someone with a stagnant or fixed income might have a lower tax bill because of the inflation adjustments.

Mr. Massey gave this example: A single filer in 2021 who earned $100,000 and took the standard deduction would have paid $15,009 in taxes, for an effective tax rate of 15 percent. Under projected brackets for 2023, a taxpayer with the same income would pay $14,383 — a saving of $626 — for an effective rate of 14.4 percent.

The standard deduction, which reduces your taxable income without requiring that you itemize deductions, is expected to rise to $13,850 next year from $12,950 this year for single filers and to $27,700 from $25,900 for couples.

Here are some questions and answers about income tax inflation adjustments:

Next year, you’ll be able to contribute an estimated $6,500 to an individual retirement account, up from $6,000 this year. Limits are $1,000 higher if you’re over 50; this “catch-up” amount is not indexed to inflation, but would be under legislation pending in Congress known as Secure Act 2.0. (Adjustments for workplace 401(k) accounts are calculated differently, based on data that will become available next month, Mr. Pomerleau said).

Article source: https://www.nytimes.com/2022/09/23/your-money/inflation-taxes-savings.html

Deadlines for Using Up Flexible Spending Accounts Return

In the example, a worker contributes the maximum of $2,750 to her F.S.A. for 2020. She spends just half but, under the temporary rules, carries over the $1,375 balance into 2021. (Under normal rules, the maximum amount for rollover that year would have been $550.)

In 2021, the worker again contributes the maximum of $2,750. She again spends half, and rolls over the remaining $1,375 — plus the $1,375 from the prior year — into 2022.

In 2022, she contributes the maximum — now $2,850. She has so far spent just half the contribution and has $1,425 remaining.

That adds up to a balance of $4,175 ($1,375 plus $1,375 plus $1,425), but the rules now allow a carry-over of just $570 into 2023. The worker may have to spend $3,605 by the year-end deadline, less than four months away, or risk forfeiting the funds.

Workers with an F.S.A. should confirm various deadlines with their employers, Mr. Durso said. While expenditures must be incurred by the deadline, employers may offer a “run out” period of several months after the deadline, during which workers can still submit receipts for reimbursement.

Here are some questions and answers about flexible health spending accounts:

Employees can use their F.S.A. contributions to pay for a broad range of health services and products, including over-the-counter medication, first-aid kits, blood pressure monitors, breast pumps, and menstrual pads and tampons. Covid-related supplies, like masks and hand sanitizer, also qualify. Less commonly known eligible items include deep massage guns favored by athletes, and the cost of buying and maintaining a guide dog or other service pet. Details can be found in I.R.S. Publication 502.

Article source: https://www.nytimes.com/2022/09/16/your-money/fsa-account-money-deadlines.html

Student Loan Forgiveness Is Complicated, Because This Is America

Patching the student loan system is just the latest chapter in our long, sorry history of making things hard. In doing so, we confuse the very people we’re trying to help: the young, the old, the sick, the people without much time because they’re working hard to make ends meet.

In some ways, this is a feature of federalism. The U.S. government helps pay for or subsidize unemployment insurance, Medicaid and 529 college savings plans. States, however, have rights. And so the size of your unemployment check depends on where you live, your state can refuse federal Medicaid funds that could help you have more health care and there are dozens of 529 college savings plans with different tax breaks — or none at all.

We also like markets and plenty of choice. Politicians, policy wonks and product managers spend decades creating or navigating laws and regulations, and marketplaces emerge accordingly.

But then we get a result like the one we have in retirement savings. Have yourself a 401(k) or a 403(b) or a 457 depending on where you work, or all three over your next three jobs. You can invest money in a T.D.F. or possibly a REIT but probably not an E.T.F., and don’t forget to check for the E.S.G. options. Or maybe you’d like one of the many flavors of I.R.A.s, like an S.E.P. or (you really can’t make this stuff up) a S.I.M.P.L.E. one.

Then, it’s time to sign up for Medicare. Tempted by an “Advantage Plan,” where a company promises to help you comprehend and utilize selections from your menu of government benefits? You may be able to choose among H.M.O., P.P.O., P.F.F.S., S.N.P., H.M.O.-P.O.S. and M.S.A. plans. The Centers for Medicare Medicaid Services website has an acronym glossary with 4,420 entries, because personal finance is its own language. You learn as you go, or not at all.

Article source: https://www.nytimes.com/2022/09/03/your-money/student-loans-personal-finance.html

I.R.S. to Refund Late-Filing Penalties for 2019 and 2020 Returns

Groups representing tax professionals, including the American Institute of Certified Public Accountants, are urging the I.R.S. to extend the deadline for the late-filing refund. While it is pleased with the “unprecedented” blanket relief, the institute said in a letter to the I.R.S., a Sept. 30 cutoff is “unreasonable” because taxpayers and preparers are busy with other tasks, including the Oct. 17 deadline for those who received extensions to file their 2021 returns.

Eric L. Smith, an I.R.S. spokesman, said the agency was aware of the extension request but had no change to report. He said the agency didn’t have an estimate of how many taxpayers might be affected by the Sept. 30 deadline. In announcing the plan in late August, Chuck Rettig, commissioner of the I.R.S., said penalty relief was a “complex issue” to administer.

Here are some questions and answers about I.R.S. relief for late-filing penalties.

The I.R.S. says that no application is necessary and that there is no need to call. If you paid the penalty, you will automatically receive a credit or a refund. Most eligible taxpayers will receive their refunds by the end of September, the agency said. But remember, you have to have filed the return by Sept. 30.

An “overwhelming majority” of filers will receive checks mailed to the address on file with the I.R.S. There is no option for direct deposit, except in “very rare” circumstances, according to Ms. Collins’s blog post.

The best way to see if relief has been applied is to create an online account at irs.gov and check your tax transcript, Ms. Collins said. That way, you can avoid long waits on I.R.S. phone lines.

Because of the large scale of the relief program, it could take time to process checks, and “speed bumps” may occur, Ms. Collins said. She advised taxpayers to be patient and to wait until after Nov. 30 before contacting the I.R.S. to ask about penalty checks.

If you have moved since last filing a tax return, you risk having your refund check “go astray,” the taxpayer advocate said. So, the advocate said, you should “lose no time” in updating your address with the I.R.S. You must call the I.R.S. on the phone or send in a form by mail. It can take up to six weeks to fully process a change of address, the I.R.S. website says. It may be faster to update your address online with the U.S. Postal Service. But you should still notify the I.R.S., the agency says, because not all post offices forward government checks.

Article source: https://www.nytimes.com/2022/09/09/your-money/irs-late-filing-penalties-relief.html

Pete Buttigieg Is Trying to Fix Air Travel With a ‘Dashboard.’ What’s on It?

If airlines don’t meet the commitment stated in the chart, the Department of Transportation said passengers could submit a complaint. Of course, that won’t immediately help.

No. The proposal tries to clarify the conditions under which travelers are owed a full refund instead of a credit or voucher, if a flight is significantly altered. Such alterations include a three-hour delay for a domestic flight, a six-hour delay for an international flight, the addition of a layover or a switch in the departure or destination airport.

The proposal, which Mr. Buttigieg will revisit in November, does not currently stipulate that the money has to be automatically refunded if passengers choose to cancel instead of fly. If it becomes a federal requirement, some airlines may choose to interpret it this way. Others may still require passengers to call their airline to make this happen.

The airlines say they are, noting that they have already made major changes to schedules and staffing, and as a result, things have gotten better, with cancellations falling notably in recent weeks. Some analysts back them up, arguing that the airlines are implicitly incentivized to reduce cancellations, given that they cost money and create major headaches.

But nearly 40 state attorneys general don’t think so. Just as Department of Transportation officials were giving a press briefing on their recent successes getting the airlines to change, the attorneys general published a letter arguing that the Department of Transportation’s approach is so weak that it should be stripped of its ability to regulate aviation. State attorneys general — and perhaps another federal agency — should be given that role instead, they wrote.

In a follow-up email, the New Hampshire attorney general, John M. Formella, who was among those who signed the letter, offered his review of the interactive dashboard. “Will the new dashboard give paying air customers a timeline of when the Transportation Secretary and his colleagues will start to enforce the law and provide them some basic consumer protections?” he wrote.

Article source: https://www.nytimes.com/2022/09/02/travel/airline-dashboard-flights-cancellations.html

Beware of Scammers Trying to Capitalize on Student Loan Forgiveness

Mike Pierce, executive director of the Student Borrower Protection Center, an advocacy group, said he had received at least two calls in recent days, even though he holds no federal student loans. “They’re not wasting any time,” he said.

In fact, nefarious callers have had ample time to prepare, since talk of student loan forgiveness has been percolating since Mr. Biden proposed it during the 2020 presidential campaign. Payments on most federal student loans were first temporarily suspended in March 2020, early in the pandemic, by the Trump administration. Mr. Biden extended the pause several times, and payments are now scheduled to resume after Dec. 31.

Even before the president’s recent action on loan forgiveness, scams based on the premise of securing help with student debt have kept federal regulators busy. Scam callers use the existence of legitimate, but often confusing, federal programs that can reduce monthly payments or forgive student debt, like the public service loan forgiveness option, to trick borrowers into paying illegal fees or sharing sensitive information. The F.T.C. has received nearly 49,000 complaints about student loans in the first eight months of this year, and about two-thirds of those were related to student loan debt relief, including scam calls, the agency said.

“Student debt cancellation is unprecedented, but these tactics are not new,” said Andrea Matthews, adviser to Rohit Chopra, the director of the Consumer Financial Protection Bureau.

Article source: https://www.nytimes.com/2022/09/02/your-money/spam-calls-student-loans.html

What to Do if Market Drops Took a Bite Out of Your College Savings

Some plans offer federally insured bank savings options, Ms. Biar said.

Jeff Brooks, who works for a family publishing business in Seattle, said he was shocked to find that his children’s accounts through Utah’s my529 plan had lost about $19,000 combined in the first half of the year. One child is in college, and the second is a high school senior. He paid all upcoming college expenses as soon as he could, he said, and moved remaining balances to a stable value fund within the 529.

“I wanted to stop the bleeding,” he said.

The plan, which has a top rating from Morningstar, had been “solid” until now, Mr. Brooks said. But he cautioned that age-based portfolios should not be viewed as a “set it and forget it” option.

Brad Ledwith, a certified financial planner in Morgan Hill, Calif., suggested that families with students in college might consider moving an amount equal to several tuition payments into a low-risk option within the 529 plan, such as a money-market fund or even a certificate of deposit.

Mr. Ledwith, a father of four, including twins who are juniors in high school, said he had accrued $1 million in a 529 plan as of Jan. 1, but the balance had fallen about 23 percent by July. (He chose a more aggressive investment option with greater stock exposure, rather than an aged-based portfolio.)

“It was an eye opener,” he said, adding that he has a high tolerance for risk.

He said he was confident that the market would rebound. Even so, he has moved $100,000 into a more conservative option within the 529 plan.

Despite the current market gyrations, Mr. Ledwith said, people whose children are just starting high school should stay invested in a growth portfolio: “A lot can happen in five years,” he said. And people with very young children, he said, should consider contributing even more to their 529, since they will be investing when prices are generally lower.

Article source: https://www.nytimes.com/2022/08/26/your-money/markets-college-savings.html