Weekly Digest – February 16 2022

If you think prices are increasing faster than the inflation index shows, you may be correct. Businesses are finding novel ways to pass on their cost increases to consumers. The Labor Department’s consumer-price index measures how much consumers pay for goods and services includes some of the price increases, such as smaller packages or additional fees for hotels or car rentals, but it doesn’t cover some of the hidden ways that businesses increase the effective costs for consumers. For example, Harley-Davidson motorcycles is adding a mandatory materials surcharge, which makes it easier to adjust the prices consumers pay as the company’s own costs fluctuate. Some restaurants are adding Covid surcharges or cutting back on free items.

THE AMERICAN RECOVERY PLAN ACT (ARPA)

Paycheck Protection Program (PPP)

If your business received a PPP loan but was denied full forgiveness, the SBA has created a new process for appealing the lender’s decision. Companies must submit their request within 30 days from receipt of notification from the lender of the amount forgiven. If that time has already passed, lenders have 30 days from January 27, 2022 – the date of the SBA’s procedural notification – to notify borrowers who did not receive full forgiveness that they have 30 days to appeal the lender’s decision. Companies must continue to make payments on any unforgiven portions of their loans while their decision is being appealed.

Recovery Rebate Credits and Economic Impact Payments

Did one or more of your economic impact payments (EIP) – aka stimulus checks – go astray somewhere? The IRS has published a new Fact Sheet with updates to its FAQs for tracing EIPs. Detailed instructions can be found under the answer to Q F8, which explains how to start a payment trace with the IRS, and the separate procedures if the IRS determines that the check was not cashed or if the IRS determines that the check was cashed.

Tax Benefits Under ARPA

Another fact sheet from the IRS discusses various tax benefits included in ARPA. These include expanded tax credits for families with children, the expanded earned income tax credit for childless workers, and changes to deductions for charitable contributions. The fact sheet also explains the process for people who did not receive the third round of stimulus payments to receive the third payment as a Recovery Rebate Credit on their tax returns.

Monthly Child Tax Credit Payments

If you received monthly advance Child Tax Credit payments in 2021, your tax refund may be smaller than usual when you file your 2021 tax return. Those advance payments should equal half of the amount that would normally be claimed on a tax return, which will reduce the amount of your tax refund. Divorced parents who share custody of their children, or who earned more in 2021 than in 2020, may have to repay some or all of the Child Tax Credit payments they received.

Before filing your tax return, be sure the verify that the letter you received from the IRS – Letter 6419 – has the correct amount of payments. If the amount does not match, check your IRS Online Account and compare that amount with the payments you received. If that matches, use the amount from the online account when you file your tax return, not the number in Letter 6419. If the online account amount does not match the payments you received, you should request that the IRS trace the missing payment or payments.

Using the correct amount will help ensure that refunds are paid promptly within 21 days. As a reminder, couples who filed Married Filing Joint will each receive a letter reporting half of the payments received. When filing 2021 tax returns, married couples will need to combine both amounts when they file their joint return. For more information on the expanded child tax credits see the IRS FAQs.

TAX MATTERS

The IRS reversed its prior decision that would have required taxpayers to set up an account through the third-party provider ID.me starting this summer, which relied on facial recognition to verify identities of users. Due to privacy concerns and issues where ID.me incorrectly failed to verify the identities of many individuals, the IRS is transitioning away from the use of this third-party process.

The IRS has a backlog of 24 million unprocessed tax returns and other pieces of paper correspondence, which will further slow processing of tax returns for the current tax filing season. This backlog arose through a perfect storm of problems: IRS workers who were forced to work at home during the pandemic; federal stimulus measures and advance child tax credit payments which added to the agency’s workload; an older and retiring IRS workforce; inability to recruit new employees to the IRS; and outdated equipment. Paper tax returns are taking 10 months or more to process.

Meanwhile, the IRS has put a pause on sending out many of the automated notices and letters until it works through its backlog. This step is being taken because many of these notices are automatically generated when the IRS has no record of tax returns being filed or has not received a payment. Many of these tax returns and payments were actually submitted but have not yet been processed.

CYBERSECURITY

Phishing scams involving Microsoft 365 that exploit an old trick are on the rise, according to an email security company. The technique, known as the right-to-left override attack, tricks users into clicking on a file by hiding its extension. For example, a file with a .exe extension, which is an executable file, might be disguised as a .txt file. In the current wave of attacks, users are being tricked to open a voicemail file with the .mp3 extension which actually takes users to a webpage where they are asked to enter their credentials. Email security does not always identify these phishing attempts, so users need to be aware of this trick so they do not click on malicious files.

PERSONAL FINANCE

The biggest source of retirement funds will most likely be your Social Security benefits. Using the optimal strategy for claiming those benefits can make a big difference to your family’s finances. While benefits can be claimed as early as age 62, waiting until age 70 can boost your monthly benefit by about 8% per year. However, for some people, claiming benefits at their full retirement age of 65 or 66 may make the most sense. Doing your own research or using independent Social Security software can help you make the best decision.

REMOTE AND HYBRID WORK OPTIONS

Even as pandemic restrictions in the U.K. ease, many workers are still opting for remote work or a hybrid schedule. Some companies, such as Goldman Sachs, expect that all workers will ultimately return to the office, while other large banking and financial companies are planning for hybrid schedules, which about two-thirds of people prefer. Some companies are reinventing how work is done by incorporating flexibility, shorter meetings, and shared workspaces for collaboration into their long-term plans.

ECONOMY

Inflation may be costing you an extra $276 per month, according to analysis by Moody’s Analytics. According to the Labor Department, inflation for January hit 7.5%, a four-decade high. However, the impact of inflation on your monthly spending depends a great deal on your household income, where you live, whether you rent or own your home, and how you get around. For example, middle-class households tend to spend more of their income on gasoline and used cars, whose prices have been increasing at a faster pace than inflation. In contrast, higher-income households tend to spend more on dining out and recreation, whose prices have been climbing at a slower pace. This means that middle-class households may feel a bigger impact than higher-earning households.

Household debt increased by $1 trillion across the U.S. during 2021, according to data from the Federal Reserve Bank of New York. Mortgage debt and auto loans were the biggest drivers of this increase, as low rates encouraged people to buy new homes, and rising prices for new and used cars forced people to borrow more to buy a vehicle. A silver lining is that student loan balances dropped by $8 billion in 2021. Some of this drop was because interest on federal student loans did not accrue while loan payments were in forbearance during the pandemic, but many borrowers continued to make payments.

GENERAL RESOURCES

We sincerely hope that you and your family are well and remain well. If you have any questions or concerns, don’t hesitate to reach out to us. We are all in this together!

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