Page 27 - Investment Advisor - Jan/Feb 2021

spending at restaurants, the law allows there is no requirement of an intention extended through 2025.
for a full deduction for such expenses in to work. The new law extends the period in which
2021 and 2022. Therefore, even those who intention- forgiven debt attributable to a primary
ally retired in, or voluntarily took off residence may be excluded from income
6. Tuition deductions are large parts of 2020 — or even those who through 2025 for those who go through
streamlined. left the workforce in 2019 — may be able a short sale and end up resolving their
The tuition and related expenses deduc- to receive one or both credits for 2020, outstanding mortgage balance with a
tion has been replaced by an expand- Levine said. foreclosure or sale of the home for less
ed — and more generous — lifetime than the remaining balance.
learning credit. Congress has “simplified 8. Exclusion for employer payments However, starting in 2021, the maxi-
our lives” with the new plan, Levine said. of student loans is extended mum amount of debt that can be dis-
Starting in 2021, the lifetime learning through 2025. charged has been reduced from $2
credit phaseout range will be aligned Initially authorized by the CARES Act million under prior law to $750,000 for
with the American Opportunity Tax in March for 2020 only, the ability for joint filers, and from $1 million under
Credit phaseout range. Both credits an employer to provide up to $5,250 prior law to $375,000 for single filers.
will phase out from $80,000-$90,000 of annual tax-free education assistance
for single filers, and from $160,000- used to pay the principal or interest on 10. There is no additional relief on
$180,000 for joint filers. an employee’s qualified student debt is RMDs.
extended through 2025. It is significant that some widely dis-
7. Earned income from 2019 can These payments can be made direct cussed potential changes were not
be used to determine eligibility for to a lender or they can be made to the included in the new legislation. They
2020 earned income tax credit and employee, who can then use the pay- include expected additional relief on
additional child tax credit. ments to pay down their own student required minimum distributions from
Section 211 of the law allows individu- debt, Levine noted. retirement accounts, Levine noted.
als to use their 2019 earned income to
calculate the amount they will receive 9. The exclusion for the discharge of Jeff Berman can be reached at jberman@
for either credit for 2020. Significantly, qualified principal residence debt is alm.com.

Nearly Half of Taxpayers Don’t Know When They Last Updated Their W-4: AICPA
Many Americans are at risk for an unexpected tax bill in April geous, especially if one’s personal or financial situation has
because they aren’t aware of the latest changes in the rede- changed, the AICPA said.
signed W-4, which employees fill out to accurately calculate The new Form W-4, which the Internal Revenue Service
how much federal tax to withhold from each paycheck, the released late last year, no longer includes allowances and
American Institute of CPAs. makes it easier to coordinate across multiple jobs and with
A survey of nearly 1,650 taxpayers conducted by the Harris a spouse.
Poll in October 2020 found that 37% of taxpayers were not But only 26% of Americans surveyed said they had updated
familiar with the W-4, including 11% who said they had never their withholding since the IRS released the redesigned W-4,
heard of it. and only 16% had made changes to their form after the Tax
“Inaccurate withholding can lead to an unpleasant surprise Cuts and Jobs Act revised withholding tables in early 2018.
Fourteen percent of respondents said they had last updated
come Tax Day,” Gregory J. Anton, chairman of the AICPA’s their withholding before either of these major changes. Worst
National CPA Financial Literacy Commission, said in a state-
Andrii Yalanskyi/Shutterstock position, it’s more important than ever to understand how with- their withholding.
of all, 45% of tax filers had no idea when they last updated
ment. “And with many individuals in a financially precarious
holding impacts your cash flow and overall financial situation.”
“People tend to overlook a few extra bucks in their take-home
Although the IRS does not require American taxpayers to
pay, but they sure notice when they get a $300 tax bill instead
of a $1,500 refund,” Anton said. “This underscores why under-
submit the new W-4 unless they are requesting a change to
standing and updating your tax withholding is so important —
their withholding or starting a new job, revisiting the form to
ensure the current withholding is accurate can be advanta-
it directly impacts your budget.” —Michael S. Fischer

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