What’s Your Strategy for Maximizing Your Social Security Benefits?

Deciding when to take social security is a bit like playing chess. You’ll need to strategize and think a few moves ahead to maximize your benefit because age and timing matter. Applying at the youngest age possible, 62, reduces a monthly benefit 25% to 30% for the rest of your life than if you had waited until full retirement age. Delay until the latest age possible, 70, and that monthly benefit increases 8% each year you wait past your full retirement age, a bonus of 24% to 32% depending on your birth year.

Your birth year matters because the full retirement age is rising — from 66 for people born between 1943 and 1954, to 67 for those born in 1960 or later. If your birth year falls between 1955 and 1959, the full retirement age rises two months every year.

The retirement age isn’t the only thing that’s changing. The rules for claiming Social Security are different for those born after Jan. 1, 1954. This includes the majority of people filing for benefits today, and the changes especially affect married, two-earner couples.

First, the basics: Individuals pay into Social Security their entire working life in order to receive a steady stream of income in the form of a monthly benefit once they retire. The benefits are based on the person’s 35 highest years of earnings. If you don’t have 35 years of earnings, then zeroes are entered for the remaining years, reducing the monthly benefit.

As pensions disappear and life expectancies rise, a guaranteed lifelong income that isn’t tied to the stock market has tremendous value. “Social Security is the best deal out there,” says Diane M. Wilson, a claiming strategist and founding partner of My Social Security Analyst in Shawnee, Kan. “It’s an annuity that lasts a lifetime, and it’s indexed to inflation.”

Maximizing that benefit has produced a cottage industry of claiming strategists to help retirees determine the best time to start taking benefits, but it’s not a simple calculus. “In the end, it’s a longevity decision,” says Kurt Czarnowski, who counsels clients about Social Security at Czarnowski Consulting in Norfolk, Mass. “If you knew when you were going to die, all this would be a snap.” Instead, people should understand their choices and make an informed decision, he says.

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The Differences Between Restricted Filing and Deemed Filing

A stack of Social Security cardsA stack of Social Security cards

For married couples, that decision involves accounting for two people’s earnings and benefits, as well as the likelihood of one spouse outliving the other. Spouses are not only entitled to the benefit based on their own work history, but they also may be eligible for additional money when the spousal benefit is factored in, what Wilson calls “add-ons.” The spousal benefit equals 50% of the higher-earning spouse’s benefit if the lower-earning spouse takes it at full retirement age. The amount is reduced when taken early, and you can’t claim the spousal benefit until your spouse begins taking Social Security. To be clear, you do not get to take two benefits, but rather Social Security increases your benefit to equal half of your spouse’s if the one based on your own work history is smaller.

People born on or before Jan 1, 1954, can maximize benefits while still receiving some Social Security. By taking whichever benefit is lower — their own or a spouse’s — when they first apply, they let the larger benefit grow before switching to it at a later age. That option, known as “restricted filing,” isn’t available for people born after Jan. 1, 1954. For them, there’s no choice. Social Security simply bestows their own benefit and any add-ons the person is eligible for when they file for benefits, a practice known as “deemed filing.”

Let’s say the higher-earning spouse is the husband and the lower-earning spouse is the wife. Under deemed filing, when the wife applies for Social Security at her full retirement age, she is given the highest amount she is eligible for, which in this instance is 50% of her husband’s benefit, assuming he started taking it. If he hasn’t, she will be given only the benefit based on her own work history. Once her husband applies for his benefits, Social Security will increase hers so that it equals half of his. If the wife was the higher earner and her benefit was more than 50% of his, she won’t get any additional money when he starts claiming Social Security. She will simply continue collecting her own higher work benefit.

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Maximizing Social Security Benefits for Married Couples

A couple looks at a laptop. A couple looks at a laptop.

Deemed filers may have fewer options, but there are other strategies to consider, such as when to start claiming and which spouse should file for Social Security first. Those decisions can change cumulative lifetime benefits substantially, sometimes by as much as six figures, says Wilson. When she advises couples affected by the new rules, she generally recommends the higher earner to delay as long as possible, ideally until age 70, while the lower earner can file, giving the retired couple some income.

The couple’s age difference matters, particularly if the younger spouse is also the lower earner, says Jim Blair, co-owner of Premier Social Security Consulting in Cincinnati. In that case, “if they’re five years or more apart in age, you want the younger person filing as early as possible, at 62, and the older person delaying as long as possible,” he says. “Odds are the younger person is going to receive a survivor benefit before they reach their breakeven point, which is about 12 years past retirement age.” The breakeven point is the age when the total value of cumulative benefits, whether taken early or later, is roughly the same.

If the situation is reversed and the younger spouse is the higher earner, “we’ll look at what the younger individual will need in retirement,” Blair says. “If taking that benefit early at age 62 means a 25% reduction, they’re going to have to live with that for the rest of their life.” There will need to be other income to compensate for the reduction, he adds.

Couples who straddle the 1954 birth year, with one spouse falling under the old rules and the other under the new, have more ways to move the pieces on the Social Security chess board. For instance, if the wife is the younger, lower earner, she may want to apply early, taking her own reduced benefit. That would allow the husband, who was born before the 1954 cutoff date, to use a restricted application and request only a spousal benefit. Meanwhile, his benefit based on his own work history continues to grow 8% per year from his full retirement age until he turns 70. He can switch to his own higher benefit later, whether at 70 or sooner.

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Understanding Social Security Survivor Benefits

A man sits alone on a swing. A man sits alone on a swing.

Couples should try to postpone taking whichever spouse’s benefit is higher to ensure a larger survivor benefit. This is particularly important when the lower earning spouse is younger and likely to outlive the higher earner by many years. “You want that higher benefit to take care of the survivor,” says Wilson, who warns clients of expenses, like home health aides, that someone living alone will almost certainly have.

A spousal benefit turns into a survivor benefit when a spouse dies, but the benefits are not the same. A surviving spouse who is at least full retirement age can receive 100% of the deceased spouse’s benefit, as opposed to 50% for a spousal benefit. The amount is reduced if the surviving spouse claims the benefit before full retirement age. You can claim a survivor benefit as early as age 60 (50 if you are disabled). But you don’t have to take it early, and you may not want to if you’re still working.

Social Security imposes an annual earnings limit for anyone younger than full retirement age who collects benefits, a rule that also applies to surviving spouses. For every $2 earned above the limit, which is currently $18,960, Social Security will deduct $1 in benefits, with the money restored later in the form of a higher benefit when you reach full retirement age. The earnings rule is more generous the year you reach full retirement age with Social Security deducting $1 for every $3 in earnings above $50,520. There’s no limit on earnings once you are full retirement age.

A widow who is, say, 60 when her husband passes away could hold off and take the survivor benefit when she reaches her full retirement age and stops working. There’s no reason to wait beyond that age because the survivor benefit won’t increase.

A survivor benefit is also not subject to the deemed filing rule. Someone born after the 1954 cutoff date can choose to take either their own or the survivor benefit when applying for Social Security. That opens a whole new avenue of claiming strategies. A widower, for example, could take the survivor benefit first if he needs the income and let his own larger benefit continue accruing delayed retirement credits before switching to it at age 70. If his own benefit is smaller, he could take that early and switch to the larger survivor benefit when he reaches full retirement age. The survivor benefit won’t be reduced because he took his own benefit early. The survivor benefit is only reduced if he takes it before his full retirement age.

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How Death, Divorce and Remarriage Affect Social Security Benefits

picture of wedding photo cut in halfpicture of wedding photo cut in half

A divorced spouse is also eligible for benefits based on a former spouse’s earnings history. If your ex is still alive and both of you are at least age 62, you can collect a spousal benefit even if your ex hasn’t started collecting, provided that the marriage lasted at least 10 continuous years, the divorce was two or more years ago, and you haven’t remarried. Your ex won’t know you’re taking the benefit. A divorced spouse who is full retirement age can get 50% of the former spouse’s benefit; it’s reduced if taken early. Deemed filing rules still apply if you were born after New Year’s Day 1954, with only the highest benefit amount given to you.

If your ex has passed away, you can collect a survivor benefit as early as age 60, but the other requirements — a marriage that lasted at least 10 years and a divorce that was finalized two years ago — remain. You also can’t have remarried before age 60.

If you remarry after age 60, you are allowed to keep the survivor benefit from a former spouse whether you were divorced or not, but timing is everything. Wilson had a client, a widower, who was two months away from turning 60 and collecting a survivor benefit. He was also about to remarry. “I told him about the rule, and he said, ‘I can’t reschedule this now.'” He went ahead with the wedding as planned, sacrificing the survivor benefit at the altar. Wilson points out that her client could collect a survivor benefit from his first marriage if the second one ends for any reason.

As with any survivor benefit, there’s no deemed filing. A divorced spouse has the option of choosing which benefit to take first — their own or the survivor benefit — and let whichever is larger continue to grow before switching to it later on.

Remarriage brings other claiming strategies, such as applying for a spousal benefit based on the new spouse’s work record, but there is a waiting period. To collect a spousal benefit, you generally need to be married one year, Czarnowski says. An exception is made for someone who is already collecting a Social Security benefit and remarries. Then the waiting period is waived, he says. For example, a widow over age 60 who is collecting a survivor benefit and remarries is “immediately eligible to collect 50% of the new husband’s benefit, assuming he is collecting his benefit,” Czarnowski says. You will need to choose which benefit you want — the survivor benefit from an earlier marriage or the new spousal benefit.

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When Singles Should File for Social Security Benefits

A man works on a computer. A man works on a computer.

For single people who never married, there’s no survivor to consider so the decision of when to claim is based on the need for income and how much they’ll get at any given age between 62 and 70. “It’s really which point along this continuum makes sense,” Czarnowski says. You can get an idea of how much your benefit will be at different ages based on your current earnings by using Social Security’s quick calculator. You can also enter your earnings history for a more precise figure.

Most of Wilson’s single clients start claiming at full retirement age so that their benefits aren’t reduced. Should they wait until age 70 to get the highest possible benefit? “They may want to if they’re still working and they don’t need Social Security,” Blair says. “The flip side is when they pass away, the benefits end. If they pass away at 72, they didn’t collect very long.”

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You Can Pause Your Social Security Benefits

Someone pushes a red button that is labeled "No!"Someone pushes a red button that is labeled "No!"

Social Security also gives people who regret taking a benefit early the chance to reverse that decision. If you change your mind within the first 12 months of claiming your benefit, you can withdraw the application. All the benefits you received will need to be repaid, including any spousal benefits based on your work record, but you’ll get a higher monthly benefit when you restart later on.

The second way is to suspend your benefit, which you can only do once you reach full retirement age. You won’t need to repay the benefits you’ve received, and you earn delayed retirement credits of 8% per year until age 70, enabling you to reverse some of the damage from claiming early. Keep in mind, however, that when you suspend a benefit, you also suspend any other benefits based on your work record, such as a spousal benefit. If your spouse was getting $1,500 per month and $500 was based on your work record, she’ll only get her own $1,000 benefit when you suspend.

Source: kiplinger.com

The evolution of the good faith estimate

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

A good faith estimate (GFE) is a comparison of mortgage offers provided by lenders or brokers to a consumer. It was recently replaced by the loan estimate—a similar concept with a few small differences. 

What Is a Good Faith Estimate Designed to Do?

The GFE’s purpose was to present mortgage shoppers with all the details they need to know about their mortgage options to help them make well-informed decisions. This transparency ensures consumers are aware of all the costs associated with the mortgage—including fees, APR and other expenses.

Borrowers would receive a GFE three business days after submitting their mortgage application, and after thorough review, would then select which mortgage option they would like to move forward with. 

Are Good Faith Estimates Still Used?

The term “good faith estimate” is not used by lenders anymore, but the concept remains prevalent. In 2015, the GFE was replaced by the loan estimate. Anyone who purchased a home after October 3, 2015, received a loan estimate rather than a GFE. 

In October of 2015, the good faith estimate was replaced by the loan estimate.

If you applied for a reverse mortgage, HELOC, a mortgage through an assistance program or a manufactured loan not secured by real estate, you will not receive a loan estimate. Instead, you will receive a Truth-in-Lending disclosure. 

The purposes of a GFE, a loan estimate and a Truth-in-Lending disclosure are largely the same: providing transparency to borrowers. The main difference—and benefit—of a loan estimate is that there’s more regulation by the Consumer Financial Protection Bureau (CFPB). Since the GFE was not standardized through regulations, they were sometimes difficult to decipher, especially for first-time homebuyers. Conversely, each loan estimate must contain the exact same information in a standardized way, which we’ll cover below. 

What Appears on a Loan Estimate?

According to the CFPB, a complete, compliant loan estimate should include the length of the loan term, the purpose of the loan, the product (fixed versus adjustable interest rate, for example), the loan type (conventional, FHA, VA or other), the loan ID number and indication of an interest rate lock. Additionally, the loan estimate will include the following:

  • Loan terms: A summary of the total loan amount, interest rate, monthly principal and interest and penalties, and whether these amounts can increase after closing.
  • Projected payments: A summary of monthly principal, interest, mortgage insurance, taxes and insurance. Broken down by years 1–7 and 8–30 for a 30-year mortgage.
  • Costs at closing: Estimated closing costs and the total estimated cash needed to close, which includes the down payment and any credits.
  • Loan costs: Origination charges—which is broken down by 0.25% of the loan amount, application fees and underwriting fees—and other fees.
  • Other costs: Taxes, government fees, prepaid homeowners insurance, interest and prepaid property, escrow payment at closing and title policy.
  • Comparisons: Metrics you can use to compare your loan to others. Includes the total principal, interest, mortgage insurance and loan costs you will have paid after five years.
  • Other considerations: Information about appraisal, assumption, homeowner’s insurance, late payment fees, refinancing and servicing.
  • Confirmation of receipt: A line at the end of the statement that confirms you have received the form. This does not legally bind you to accept the loan.

Your loan estimate will also include your personal information, including your full name, income, address and Social Security number. Make sure to double-check all of this information for errors, as they could cause potential problems later in the process.

To better understand your loan estimate, explore the CFPB’s interactive guide.

Closing Disclosure

For first-time homebuyers in particular, it’s important to understand the timeline of events so that you can be prepared for your home buying process and have all the information and necessary documents at hand.

Closing Disclosure Timeline

Lenders are required to send you a loan estimate form no more than three business days after receiving your application. Finally, at least three business days prior to loan consummation—when you are contractually obligated to the loan—you will receive a closing disclosure.

Lenders are required to send you a loan estimate no more than three days after receiving your application and a closing disclosure at least three days prior to loan consummation.

What Is the Purpose of a Closing Disclosure?

The purpose of a closing disclosure is to assign “tolerance levels” to fees listed in the loan estimate form. This means that fees cannot increase over their tolerance level unless a specific triggering event occurs. There are three different tolerance levels:

  • Zero percent tolerance: Fees in this category cannot increase from what is listed on the loan estimate. These fees are typically those paid to a creditor, broker or affiliate, such as origination fees.
  • 10 percent cumulative tolerance: Fees in this category are added together, and the sum of these fees are not to increase by more than 10 percent of the amount listed in the loan estimate. Fees include recording fees and third-party service fees.
  • No tolerance or unlimited tolerance: Fees in this category have no limits at all, and can increase by any amount, as long as they are disclosed “in good faith,” using the best information available. These are usually fees lenders have little to no control over.

Remember not to confuse “zero percent tolerance” with “no tolerance,” as they are quite different. Zero percent tolerance fees cannot increase, while no tolerance fees can increase by any amount as long as it is considered “in good faith.”

Does a Loan Estimate Affect My Credit?

The act of applying for a mortgage may temporarily cause your credit score to dip, as it requires a hard inquiry by lenders. However, you may shop around for different mortgages from different lenders to get multiple preapprovals and loan estimates. As long as you do this all within a 45-day window, these separate credit checks will be recorded on your credit report as one single hard inquiry.

This is because lenders realize that you are only going to buy one home, so they categorize all of the actions you take under one umbrella of applying for a mortgage. Note that you may want to consider the 45-day rule loosely. Prioritize finding the best mortgage deal possible. Even if this means processing a hard inquiry outside of the 45-day window for a better deal, you’ll likely end up saving more money in the long run.

To learn more about what affects your credit and how to work toward improving your credit profile, contact our team at Lexington Law.


Reviewed by Kenton Arbon, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Kenton Arbon is an Associate Attorney in the Arizona office. Mr. Arbon was born in Bakersfield, California, and grew up in the Northwest. He earned his B.A. in Business Administration, Human Resources Management, while working as an Oregon State Trooper. His interest in the law lead him to relocate to Arizona, attend law school, and graduate from Arizona State College of Law in 2017. Since graduating from law school, Mr. Arbon has worked in multiple compliance domains including anti-money laundering, Medicare Part D, contracts, and debt negotiation. Mr. Arbon is licensed to practice law in Arizona. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

Apple Card Review – Does It Live Up to the Hype?

Advertiser Disclosure: This post includes references to offers from our partners. We receive compensation when you click on links to those products. However, the opinions expressed here are ours alone and at no time has the editorial content been provided, reviewed, or approved by any issuer.

Apple Card immodestly claims to “completely [rethink] everything about the credit card.” Is it correct? Maybe.

Backed by the Mastercard network, Apple Card certainly has a host of innovative features that old-fashioned credit cards don’t, such as daily cash-back and numberless physical cards. And it’s a harbinger of the cashless, contactless payments landscape to come. No serious observer can dispute that Apple Card is ahead of its time.

But any product that’s truly ahead of its time must also be competitive in the present. And beyond its novel features, Apple Card works pretty much like any other credit card. Indeed, in spite – or perhaps because – of its novel additions, it lacks some consumer-friendly features common to other popular cash-back cards and general-purpose rewards cards.

Here’s a closer look at what sets Apple Card apart, and how it stacks up against other credit cards.

Things to Keep in Mind About Apple Card

Before we dive into Apple Card’s details, two points bear mentioning.

First, though cardholders who don’t pay their statement balances in full each month are subject to interest charges that vary with their creditworthiness and prevailing benchmark rates, Apple Card charges none of the fees typically levied by credit card companies: no annual fee, no late fee, and no over-limit fee.

Second, Apple Card is designed to work with Apple Pay, which runs on Apple (Mac) hardware only. If you’re one of the many millions of iPhone users in the United States, this card is for you. If you’re an Android loyalist, you’re out of luck.

Key Features

Here’s a closer look at Apple Card’s most notable features.

Earning Cash Back

Apple Card has a three-tiered cash-back program:

  • 3% Cash Back. All purchases from Apple earn unlimited 3% cash back. These include, but are not limited to, purchases from Apple.com, physical Apple Stores, the iTunes Store, the App Store, and in-app purchases. Certain non-Apple purchases made using Apple Pay earn 3% cash-back rewards as well.
  • 2% Cash Back. All other purchases made using Apple Pay (including through your Apple phone or Apple Watch) earn unlimited 2% cash back. Hundreds of major retailer chains and brands, encompassing more than 2 million individual merchant locations online and off, accept Apple Pay. These include but aren’t limited to Walgreens, Nike, Uber Eats, Duane Reade, Amazon, and thousands of gas stations. If you’re not familiar with how Apple Pay works, see its site for details.
  • 1% Cash Back. Purchases made with merchants – online, offline, and in-app – that don’t accept Apple Pay earn an unlimited 1% cash back.

Redeeming Cash Back

Cash back earned through Apple Card purchases accrues daily. Each day a purchase posts to your account, you’ll receive the requisite cash back on your Apple Pay Cash card in the Apple Wallet app.

From there, you can use it to pay for purchases within or without the Apple ecosystem or to make payments on your Apple Card balance.

If you don’t have an Apple Pay Cash card and aren’t interested in getting one, you must accept cash back earned to your Apple Card via statement credits, which may not be much of a sacrifice.

Apple Pay Integration

Apple Card is essentially an offshoot of Apple Wallet. It’s designed for use in conjunction with Apple Pay – or, more specifically, as the user’s default Apple Pay payment method. Apple clearly expects most Apple Card transactions to be contactless, executed through a Web portal or with the tap of an iPhone.

Beyond Apple Card’s novelty as the first truly “contactless first” credit card, users benefit from Apple Pay’s stringent security features. These include:

  • Unique Device Number. Your Apple Card is issued with a unique number that’s stored in your iPhone’s Secure Element, the secure microchip that hosts the phone’s most sensitive functions.
  • Two-Factor Purchasing. Every purchase requires your unique device number, plus a unique one-time code generated on the spot.
  • Purchase Authorization Via Face ID or Touch ID. This renders stolen phones all but useless for making purchases.

Apple Card also takes data security seriously. Apple and Goldman Sachs, the card’s issuer, vow never to share customer data with third parties. Only Goldman Sachs has access to users’ transaction histories and personal information.

Physical Credit Card

Apple Card isn’t 100% virtual. The physical Apple Card is a titanium card that looks and feels just like any other premium credit card, except that it’s much sleeker. The card face is a minimalist triumph, with no cardholder name, card number, or CVV and virtually no marks to mar its metallic hue.

Apple and Goldman Sachs tout the security benefits of Apple Card’s featurelessness. Without any information to identify the card, it’s useless in the wrong hands.

Real-Time Fraud Protection

Apple Card’s real-time fraud protection feature notifies you every time your card is used to make a purchase. If something doesn’t seem right about a transaction, or you know for a fact that you didn’t make it, you can immediately initiate the dispute process by tapping the notification.

Purchase Organization and Mapping

Apple Card automatically organizes purchases by purchase category – entertainment, food and drinks, and so on – and merchant. Categories are color-coded for easy visualization and totaled monthly for easy budgeting. With features like that, who needs a paid budgeting app?

Apple Card also automatically maps purchases, showing you where you’ve spent money recently, literally. If a real-time fraud protection notification slips your notice, perhaps seeing a purchase in a city you’ve never visited will jog your memory.

Spending Summaries

Apple Card’s spending summaries, visible in the Wallet app, reveal how much you’re spending, and on what, in any given week or month. You can view spending trends over time here too, which comes in handy for the periodic budget reviews you should be doing.

Payment Due Dates & Frequency

By default, Apple Card statements are due at the end of the month. If you prefer to pay balances more frequently – and reduce interest charges when you can’t pay off your balance in full before the statement due date – you can set weekly or biweekly payments too.

Interest Calculator

Apple Card’s built-in interest calculator automatically tallies expected interest charges when you pay less than the full balance due on your card before the end of the grace period.

Credit card issuers are required to reveal on each statement the true cost of making only the minimum payment due in comparison with at least one larger monthly payment.

However, this is a far more robust and interactive interest calculator that’s significantly more likely to nudge you to boost your monthly payment.

Interest-Reduction Suggestions

If the interest calculator isn’t enough, Apple Card also provides “smart payment suggestions” that encourage cardholders to increase their monthly payments, thereby decreasing their total interest liability.

It’s not clear how Apple Card arrives at these suggestions, but they appear to be based on cardholders’ spending patterns and payment history.

Interest-Free Installment Payments

Apple Card offers interest-free monthly installment payments for select Apple products purchased through the company’s sales channels. You can easily see the size of your installments and how much you have left to pay in the app.

Text-Based Support

Apple Card has a text-based support system that’s available 24/7. If you run into an issue with the card or have a question that doesn’t concern a disputed charge, which you can handle through the real-time fraud protection interface, this is your ticket to a resolution.

Important Fees

Apple Card charges no fees to cardholders: no foreign transaction fees, balance transfer fees, or annual fees.

Advantages

These are among Apple Card’s principal advantages.

1. No Fees

Apple Card doesn’t charge any fees to cardholders. This makes it all but unique, as even avowedly low-fee cards assess fees for less common occurrences such as late and returned payments.

2. Cash Back Accrues Daily

Apple Card is among the only widely available credit cards to accrue cash back on a daily basis, rather than at the end of the statement cycle.

Although the accrual frequency doesn’t affect net cash-back earnings or cash back earning rates, it’s certainly nice to see your spending subsidized in near-real-time.

3. Solid Cash Back Rates on Apple & Apple Pay Purchases

This card earns 3% cash back on virtually all purchases within the Apple ecosystem, excluding purchases with Apple Pay merchants. This 3% category covers, but isn’t limited to, the following:

  • Apple.com purchases
  • Purchases at physical Apple Stores
  • iTunes Store purchases
  • App Store purchases
  • In-app purchases

Apple Card also earns 2% cash back on purchases made with Apple Pay merchants. So if you’re able to limit your spending to the Apple and Apple Pay ecosystems, you’ll net somewhere north of 2% cash back on this no-annual-fee card, depending on your exact spending mix.

4. Above-Average Security Features

Apple Card is more secure than your average credit card. The physical card doesn’t have a card number or CVV, so you won’t have to worry about what could happen between the moment you lose your card and the moment you freeze your account.

The virtual card is denoted by a unique device number locked away in your iPhone’s Secure Element, far from prying eyes.

Perhaps most consequentially, Apple has a strict privacy policy that forbids data sharing with third parties. There’s no need to opt out, which is often easier said than done, and only Goldman Sachs has access to your transaction history.

5. Real-Time Fraud Protection

Apple Card has another security feature worth touting: real-time fraud protection that alerts you whenever your card is used to make a purchase and lets you flag potentially fraudulent transactions with a single tap.

Compared with the traditional dispute resolution process, this is a snap, even when flagged charges turn out to be legitimate.

6. Easy, Flexible Payments

Apple Card’s default payment due date – the last day of the month – is easy to remember, even without the helpful reminders.

If you’re trying to budget on an irregular income and prefer not to wait until the end of the month to pay off your entire balance, Apple Card’s customized weekly and biweekly payment intervals have you covered.

Other credit cards let you pay off balances throughout the month, but few make it as easy as Apple Card.

7. Interest-Reduction Features

Apple Card’s interest calculator and interest-reduction suggestions are classic examples of “nudge” theory in action. By revealing just how much you’ll save over time by paying a little more upfront, these features nudge you to make smart financial decisions.

Of course, it’s always best to pay off your balance in full by the statement due date, but when unexpected expenses make that impossible, it’s nice to feel like your credit card issuer is on your side.

8. Useful Budgeting and Spending Control Features

With so many budgeting and spending control features, Apple Card feels like a personal budgeting suite with a spending aid built in.

Maybe that’s the point. Though most small-business credit cards have basic expense tracking and reporting features, Apple Card’s package is unusually robust for a consumer credit card.

If what’s keeping you from building and sticking to a household budget is the inconvenience inherent in standalone budgeting software, this is a potential game-changer.

9. Text-Based Customer Support

Apple Card’s text-based customer support is a low-friction alternative to menu-laden, over-automated phone support and unpredictable email support.

Whether this feature is as efficient as Apple and Goldman Sachs promise remains to be seen, but it’s difficult to see it being worse than the status quo – for relatively simple issues, at least.

10. No Penalty Interest Charges

Apple Card doesn’t charge penalty interest. While it’s best never to find yourself in a position where penalty interest would apply, the assurance that you won’t be unduly penalized for a lapse beyond your control is certainly welcome.

Disadvantages

Consider these potential disadvantages before applying for Apple Card.

1. Requires Apple Pay and Apple Hardware

Apple Card’s biggest drawback is its exclusivity. The card requires Apple Pay, which runs exclusively on Apple hardware, meaning it’s not appropriate for Android or Windows device users.

If you’re set on applying for Apple Card but don’t have an iPhone or other compatible Apple device, Apple Watch is your most cost-effective option. Apple Pay runs on Apple Watch just fine, and you can pick up refurbished older versions – Series 1, 2, and 3 – for less than $100.

That’s still a significant outlay, though, and no other credit card on the market requires compatible hardware.

2. Only 1% Cash Back on Non-Apple Pay Purchases

Apple Card earns just 1% cash back on non-Apple Pay purchases. If your daily, weekly, and monthly consumption habits involve merchants that mostly accept Apple Pay, you shouldn’t have trouble earning the higher 2% cash-back rate, but not all merchants do.

Square has a non-exhaustive list of major merchants that do accept Apple Pay. Do yourself a favor and review it before applying for this card.

3. Goldman Sachs’ First Credit Card

Apple Card is the first consumer credit card issued by Goldman Sachs Bank. Apple touts this as an advantage, arguing that Goldman Sachs isn’t bound by the constraints of legacy credit card issuers such as Chase and Barclays.

And it’s not as if Goldman Sachs is entirely new to the consumer finance realm. Its Marcus by Goldman Sachs loan and savings products are innovative and well-liked.

That said, it’s not hard to imagine a first-time credit card issuer experiencing some growing pains, especially given Apple Card’s novelty. At a minimum, don’t be surprised to see iterative changes to Apple Card as Goldman Sachs figures out what works and what doesn’t.

Final Word

If you’re a committed Apple Pay user with the hardware to back it up – an iPhone, Apple Watch, or maybe an iPad – then it might make sense for you to ditch your traditional credit cards and going all-in on Apple Card.

Users who restrict their spending to Apple Pay merchants only stand to earn 2% cash back across the board, about as good as it gets on a consistent basis for premium cash-back credit cards. To do better than that, you’ll need to upgrade to a premium travel rewards credit card with a hefty annual fee.

Source: moneycrashers.com

Tips for Navigating Night Classes

When the sun is setting, happy hour consists of a stiff caffeinated drink or two for some. Their brains are still on the job.

More on liquid stimulants later, but add that sort of choice to the list when it comes to getting an education: Commute or live on campus, study full time or part time, and pick a major, to name but a few.

Once you’ve landed on a college and enrolled, it’s time to sign up for courses and plan your schedule. In many cases, schools offer courses throughout the day and evening to accommodate a broad range of students and their different schedules.

Night classes may be a convenient option for students who have to balance work and school. Given the cost of education, this is a large share of the student body. In 2018, 43% of full-time students and 81% of part-time students were employed during their studies.

Taking night classes can be an adjustment from studying during the traditional 8-to-5 window. Staying focused after a long day of work or rewiring your brain to study at night can be challenging.

Whether you’re gearing up for a degree’s worth of night school or a one-off evening class, take a look at these tips to survive night classes.

Nocturnal Animals

Generally speaking, night classes take place between 5 and 10 p.m. College night classes typically follow the traditional semester schedule, though there may be shorter timelines for special-interest topics or certificate programs.

Because night classes are geared toward nontraditional students with family and work obligations, they typically occur once a week for two to four hours, but it depends on the course credits and subject matter.

Although this condensed format may mean fewer trips to campus, it can also make for much longer days. Students may want to keep the following issues in mind.

Controlling Caffeine Cravings

When feeling tired, it may be a natural inclination to grab a cup of coffee or other caffeinated beverage to get a boost of energy and keep going. While this may help a student get through a night class or hammer out an assignment at the last minute, it can disrupt sleeping patterns, creating further fatigue the next day.

Caffeine can last up to 12 hours in the system after consumption. Even for night owls, a coffee or a Red Bull® or a Monster® after lunch could keep them awake well beyond when they want to go to bed.

If cold turkey seems like too drastic a change, you might want to try experimenting with less caffeinated beverages, such as tea. Everyone is different, and the goal is finding the sweet spot between staying awake and engaged during night classes and not losing precious sleep later on.

Staying Nourished and Hydrated

Staying focused during night classes can take practice and preparation. Packing healthy snacks and water is one way to maintain energy and feel comfortable as class discussions and lectures progress into the later evening hours.

If a professor doesn’t permit eating in the classroom, a student can likely squeeze in a quick bite beforehand or during break time.

Remaining Active

Between work, studying, class time, and other obligations, exercising may seem like a luxury that there isn’t enough time for. This can feel especially true on days when a full day at work is followed by a three-hour night class.

The Department of Health and Human Services recommends that adults complete at least 150 minutes of moderate-intensity exercise a week. Broken down over the whole week, that’s about 20 minutes of exercise a day.

If you’re really in a pinch, fitting in a brisk walk before night classes start or during the midway break in a three-hour seminar can help with your energy and work toward meeting the 150-minute threshold.

Befriending Classmates

Night classes can draw a more diverse student body than traditional college classes. For discussion-oriented classes, this can enrich the conversation with more perspectives.

It is also an opportunity to network and find a study buddy or two. Because night classes usually meet only once a week for a 15-week semester, even one absence could lead to falling behind or missing out on critical information. Classmates can be a resource for sharing notes and staying in the loop on what happened in class.

Also, becoming friends with classmates could make lengthy night classes more fun and add motivation to keep up strong attendance.

Creating a More Flexible Work Schedule

Even full-time students can expect to have at least one or two nights free from scheduled classes. If you have a flexible work schedule, you’re already in a position to craft an ideal balance of work, school, and social life.

However, if you’re working some version of the standard 9-5 schedule five days a week, the days with back-to-back work and class can feel like a marathon. Getting an education takes work, but you may not get the most out of it if it becomes something you dread.

Redistributing work hours to accommodate your night class schedule might prevent burnout. For instance, being able to come in an hour later on mornings after night classes and make them up later in the week can spread out the workload and help in catching up on sleep.

Talking to supervisors may feel intimidating, but if your college night classes are providing skills and knowledge to perform better at your job, you can make a case for getting some wiggle room at work while you finish school.

Avoiding Procrastination

As school traditionally runs from morning to early afternoon, conventional wisdom dictates completing homework and assignments the night before, at the latest. With night classes, the window to procrastinate can be extended later in the day.

Planning can help a student avoid a situation that requires picking between going to work or completing an assignment for class. Mapping out assignment due dates at the onset of the semester is one method to stay on track.

Managing Time

Between exams and papers, college classes often have a steady stream of readings and assignments to keep up with from week to week. Setting aside specific time frames to study for each class may counteract an urge to slack off between major assignments. Repetition can also improve knowledge retention, compared with cramming at the last minute.

After taking care of other responsibilities, such as an internship, job, or team practice, it may be difficult to recall readings and information at the end of a long day. Finding a moment before night class to review your notes could better prepare you to participate in discussion or ace a quiz. Creating a brief study guide covering key themes and topics for each week could help if you’re pressed for time.

Pacing Yourself

Before going full steam ahead with a full course load, you can consider testing the waters with one or two night classes. Education is a financial and career investment, and figuring out what’s right for your work-life balance could be the difference between burning out and graduating.

Keep in mind that whether you study full time or part time could affect financial aid or scholarships.

Exploring Night Class Options

Night classes are offered at community colleges and four-year universities alike. Researching multiple options could help a student find an ideal balance of cost, reputation, student body demographics, and campus environment.

Online courses are another option to consider. Synchronous courses may still have online lectures and discussions but allow students to participate from the comfort of home.

Paying for Night Classes

Education comes at a cost. Beyond tuition, taking night classes may require buying textbooks, paying for a parking pass, and other associated fees.

Work-study programs, scholarships, and grants could cover all or part of these expenses, but some students take out loans to pay the remaining cost for their degree or night classes.

Federal loans can come with protections, flexible repayment benefits, and loan forgiveness in certain cases.

When federal loans and other aid aren’t enough, private student loans are an option to consider. Students enrolled full or half time may qualify for a loan from SoFi, whose no-fee private student loans offer flexible repayment plans, helping students find an option that best meets their needs.

SoFi is here to help you reach your educational goals. It takes only minutes to find out what you’re prequalified for.



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SoFi Private Student Loans
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SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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Source: sofi.com

Adoption Tax Credits (Federal & State) – Requirements & Eligibility

The decision to adopt a child is a big one for any prospective parent, and one of the concerns often has to do with costs. Adoption-related expenses can vary widely depending on whether you work with an agency, adopt from foster care, work directly with the birth parents, or adopt internationally.

Fortunately, there are federal and state assistance programs that minimize financial obstacles to adoption.

Federal Adoption Tax Credit and Adoption Assistance Programs

The U.S. Tax Code provides two separate assistance programs for prospective adoptive parents. Both programs help cover qualified adoption expenses, which the IRS defines as:

  • Reasonable and necessary adoption fees
  • Court costs and attorney fees
  • Traveling expenses (including meals and lodging while away from home)
  • Other expenses directly related to the legal adoption of a child

To qualify, you must pay the expense to adopt a child under the age of 18 or someone of any age who is physically or mentally incapable of self-care. Qualified expenses don’t include expenses paid to adopt a stepchild.

Adoption Tax Credit

The federal adoption tax credit is worth up to $14,300 per child for the 2020 tax year.

Parents who adopt a “special needs” child automatically qualify for the maximum credit, regardless of their actual adoption expenses. The IRS’s definition of a special needs adoption might differ from definitions used elsewhere.

The adoption must meet all three of the following criteria to qualify as a special needs adoption:

  1. The child was a citizen or resident of the U.S. or its possessions when the adoption effort began.
  2. The state determined that the child can’t or shouldn’t return to their parent’s home.
  3. The state determined that the child probably wouldn’t be adoptable unless it assists the adoptive family financially.

Based on those criteria, foreign adoptions aren’t considered special needs. Also, U.S. children with disabilities might not be regarded as special needs if the state doesn’t consider them difficult to place for adoption.

Income Limitations

However, the amount of the federal adoption tax credit phases out for high-income taxpayers. It begins to phase out once your modified adjusted gross income (MAGI) reaches $214,520 and phases out entirely at $254,520.

The credit phases out proportionally if your income is between $214,520 and $254,520.

So if your income is $234,520 — the midpoint of the phase-out range — the amount of your credit is cut in half. If your income is $224,520 — one-quarter of the phase-out range — the amount of your credit is reduced by 25%.

The income limits apply whether you’re single or married and file a joint tax return with your spouse. The adoption tax credit isn’t available if your filing status is married filing separately.

Refundability

The adoption tax credit is nonrefundable. In other words, if it reduces your tax liability for the year below zero, you won’t receive the excess as a tax refund.

However, you can carry any unused credit forward for up to five years, using it to offset your tax liability in the future.

When You Can Claim the Credit

The rules for claiming the credit depend on whether the adoption is domestic or foreign.

Domestic Adoptions

If you adopt a U.S. child, you can claim adoption expenses for the tax year following the year of payment, even if you never finalize the adoption. However, any costs you used to claim the credit on an unsuccessful adoption will reduce the amount you can claim for a subsequent adoption.

For example, say you started the adoption process in 2018, but the adoption fell through. You used $3,000 of expenses to claim the adoption tax credit on your 2019 return.

In 2020, you made another attempt to adopt, spending $10,000, and successfully finalized the adoption that year. When you claim the adoption credit on your 2020 tax return, you can only claim $7,000 of expenses ($10,000 – $3,000).

Foreign Adoptions

If you adopt a child who isn’t yet a citizen or resident of the U.S. or its possessions, you can only claim the credit in the year the adoption becomes final.

For example, say you start adopting a child from Ukraine in 2019 and spend $5,000 that year. You cannot claim the adoption tax credit in 2019 because you didn’t finalize the adoption.

In 2020, you spent another $8,000 and finalized the adoption. You can use all $13,000 of expenses to calculate the credit on your 2020 tax return.

You can claim the federal adoption tax credit by completing Form 8839 and attaching it to your federal income tax return, Form 1040.

Employer-Provided Adoption Benefits

Some employers reimburse employees for adoption expenses. The IRS offers a tax break for these benefits as well, as long as the adoption assistance program meets the following criteria:

  • The program benefits all eligible employees, not just highly compensated employees.
  • The program doesn’t pay more than 5% of its benefits to shareholders or owners (or their spouses or dependents).
  • The employer must give reasonable notice of the plan to eligible employees.
  • Employees must provide reasonable substantiation (such as receipts or other documentation) to show that the payments or reimbursements are for qualifying expenses.

If the program meets that criteria, then the payments or reimbursements don’t count as taxable income on the employee’s federal income tax return, and the employer doesn’t have to withhold federal income tax from the payment. However, the employer must still withhold Social Security and Medicare taxes.

Adoptive families can take advantage of both the adoption tax credit and the income exclusion. However, you can’t claim the exclusion and the credit on the same expenses, and the maximum dollar limit ($14,300 for 2020) still applies.

For example, say you have $15,000 of qualified adoption expenses in 2020, and your employer’s adoption assistance program reimburses a maximum of $9,000. You can use the remaining $5,300 of expenses to calculate your adoption tax credit on your 2020 tax return.

That’s the $14,300 maximum dollar limit, minus the $9,000 of expenses already reimbursed by your employer. You won’t get any tax benefits for the remaining $700 of expenses ($15,000 – $14,300).


State Adoption Tax Credits

Many states offer tax credits for families who adopt children from the public child welfare system. Here’s a summary of tax credits available in each state as of the 2020 tax year:

State Tax Credit Amount
Alabama Yes Up to $1,000
Alaska No income tax
Arizona No
Arkansas Yes Up to 20% of the federal adoption tax credit claimed
California Yes Up to $2,500
Colorado No
Connecticut No
Delaware No
District of Columbia No
Florida No income tax
Georgia Yes Up to $2,000
Hawaii No
Idaho No
Illinois No
Indiana Yes The lesser of $1,000 or 10% of your claimed federal adoption tax credit
Iowa Yes Up to $5,000
Kansas Yes 25% of the adoption tax credit claimed on your federal tax return (up to $1,500)
Kentucky No
Louisiana No
Maine No
Maryland No
Massachusetts Yes Income exemption for adoption fees paid to a licensed adoption agency
Michigan No
Minnesota No
Mississippi Yes Up to $2,500
Missouri Yes Up to $10,000
Montana Yes Up to $1,000
Nebraska No
Nevada No income tax
New Hampshire No tax on wages
New Jersey No
New Mexico Yes Up to $1,000
New York No
North Carolina No
North Dakota No
Ohio Yes Up to $1,500
Oklahoma Yes Tax deduction for up to $20,000 of expenses
Oregon No
Pennsylvania No
Rhode Island No
South Carolina Yes Tax deduction for up $2,000 of expenses
South Dakota No income tax
Tennessee No tax on wages
Texas No income tax
Utah Yes Up to $1,000
Vermont No
Virginia No
Washington No income tax
West Virginia Yes Up to $4,000
Wisconsin Yes Up to $5,000
Wyoming No income tax

The rules for claiming adoption tax breaks vary by state and can change from year to year, so talk to your tax advisor to make sure you qualify.


Final Word

Adopting a child can strain family finances, but tax credits can help offset the costs.

And once you’ve finalized the adoption, remember you may be able to take advantage of several more tax breaks for parents. This includes claiming your adopted child as a dependent and claiming the child tax credit and the child and dependent care credit.

Source: moneycrashers.com

10 Tips to Detox Your Apartment

These days we’re all trying to live healthier, but you can’t concentrate your efforts merely on your fitness routine and diet. Your apartment might need a cleanse, too!

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Our cozy homes often trap allergens in carpets, linens and other sneaky spots. And to make matters worse, the cleansers we use can be just as toxic as the gunk we’re trying to get rid of.

Try cleaning up your apartment’s act with these tips!

1. Lose the shoes
A great way to start your detox is to prevent dirt and dust from getting into your home in the first place. Start a “no shoes on at home” rule, and make sure all residents and guests leave their footwear at the door. (Provide a cool shoe rack for storage!)

2. Get rid of clutter
The more knick-knacks and clutter you keep around, the more surfaces dust can settle on. One of the most important cleaning tips for keeping your home allergy-friendly is to dust and vacuum often.

3. Change air filters
Here’s a simple one. Change your air-conditioner filter every month or two. You might be lucky enough to live in an apartment community that does this for you. If not, take the extra time and do it yourself — your lungs will thank you.

4. Purify the water
Speaking of filters, your HVAC system isn’t the only place where pollutants hang out. Water sources can bring contaminants into your bathing and drinking water every day. Invest in a water filter for your sink faucets and your shower.

10 Tips to Detox Your Apartment10 Tips to Detox Your Apartment5. Change your cleansers
Many people are allergic to the chemicals in cleaners — the same cleaners that are supposed to remove allergens and dirt from your home. To help avoid irritants, switch to environmentally-friendly cleaning products like Mrs. Meyers and Seventh Generation, or try making your own cleansers from scratch.

More Cleaning and Organizing Tips

6. Open the windows and let fresh air in
Our insulated, comfy apartments are great, but a lack of air circulation can make for a stale, polluted environment. Try airing out your space by opening the windows for a few hours every now and then. It’s like giving your home a chance to take a deep breath. (This might not be the best idea at the height of the spring pollen season. Wait until the coast – achoo! – is clear.)

10 Tips to Detox Your Apartment10 Tips to Detox Your Apartment7. Monitor moisture
Mold isn’t always easy to see, but it’s the cause of many toxic reactions in the body. Keep an eye on the moisture levels in your home to combat mold growth. Make a visual check of areas that stay damp and dry out any areas that appear wet. You can also get a hygrometer to check the general humidity in your apartment. Invest in a dehumidifier if your humidity levels are above 50%.

8. Check for carbon monoxide leaks
Gas stoves, hot water heaters, furnaces and fireplaces should be checked regularly for leaks. You might invest in a carbon monoxide detector. This is especially important for apartment dwellers, as your neighbors could have a leak that you don’t know about.

9. Get expert advice
If all of these detox cleaning tips have overwhelmed you already, don’t worry – there are people who can help! Hiring a professional organizer is a great way to get your detox done quickly from someone who can teach you about the process. The National Association of Professional Organizers has a helpful database to search for “green organizers” in your area.

10. Give it time
Creating a delightfully detoxed apartment might involve many changes, but you don’t have to take them all at once. Just tweaking one thing you do, like switching cleansers, can make a big difference. Move at your own pace and, in time, your environment will be home to fewer irritants.

Like any life change, detoxing your apartment will be more fun if you enlist a buddy to help you. Find a friend to go green with, and you can celebrate your success together. To your health!

Photo credits: Shutterstock / sunsetman, Africa Studio, swinner

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Source: apartmentguide.com

7 Ways Biden Plans to Tax the Rich (And Maybe Some Not-So-Rich People)

President Biden’s latest economic “Build Back Better” package – the $1.8 trillion American Families Plan – isn’t kind to America’s upper crust. It would provide a host of perks and freebies for low- and middle-income Americans, such as guaranteed family and medical leave, free preschool and community college, limits on child-care costs, extended tax breaks, and more. But to pay for all these goodies, the Biden plan also includes a long list of tax increases for the wealthiest Americans (and, perhaps, some people who aren’t rich).

Whether any of the president’s proposed tax increases ever make it into the tax code remains to be seen. Republicans in Congress will push back hard on the tax increases. And a handful of moderate Democrats will probably join them, too. So, don’t be surprised if a fair number of the plan’s revenue raisers are dropped or amended during the congressional sausage-making process…or even if some new tax boosts are added.

While we don’t know yet which – if any – of the proposed tax increases will survive and be enacted into law, wise taxpayers will start studying the plan now so that they’re prepared for the final results (any changes probably won’t take effect until next year). To get you going in that direction, here’s a list of the 7 ways the American Families Plan could raise taxes on the rich. But even if you’re not particularly wealthy, make sure you read closely to see if you might be caught up in any of the proposed tax hikes, since a few of them could snare some not-so-rich people in addition to the one-percenters.

1 of 7

Increase the Top Income Tax Rate

picture of a calculator with buttons for adding or subtracting taxespicture of a calculator with buttons for adding or subtracting taxes

The 2017 tax reform law signed by former President Trump lowered the highest federal personal income tax rate from 39.6% to 37%. According to the White House, this rate reduction gave a married couple with $2 million of taxable income a tax cut of more than $36,400. President Biden wants to reverse the rate change and bring the top rate back up to 39.6%.

For 2021, the following taxpayers will fall within the current 37% tax bracket:

  • Single filers with taxable income over $523,600;
  • Married couples filing a joint return with taxable income over $628,300;
  • Married couples filing separate returns with taxable income over $314,150; and
  • Head-of-household filers with taxable income over $523,600.

(For the complete 2021 tax brackets, see What Are the Income Tax Brackets for 2021 vs. 2020?)

President Biden has said many times that he won’t raise taxes on anyone making less than $400,000 per year. But there have always been questions and a lack of clarity as to what this exactly means. For instance, does it apply to each individual or to each tax family? We still haven’t received a crystal-clear answer to that question. As a result, we’re not entirely sure if the president wants to adjust the starting point for the top-rate bracket to account for his $400,000 threshold. According to a report from Axios, an unnamed White House official said the 39.6% rate would only apply to single filers with taxable income over $452,700 and joint filers with taxable income exceeding $509,300. That would satisfy the president’s promise for single people, but it’s a bit trickier for married couples filing a joint return.

If the 39.6% rate kicks in on a joint return when taxable income surpasses $509,300, a married couple could end up being taxed at that rate even if both spouses earn well under $400,000 per year. For example, if Spouse A makes $270,000 and Spouse B makes $260,000, their combined income ($530,000) is over the $509,300 threshold. Using the 2021 tax brackets, they wouldn’t even make it into the 37% bracket (they’d be in the 35% bracket). So, each spouse would face a tax increase under the Biden plan, even though neither one of them earn over $400,000 per year.

To be fair, this type of “marriage penalty” exists for the current 37% tax bracket, since the minimum taxable income for joint filers is less than twice the minimum amount for single filers. However, the current brackets weren’t set up with a pledge not to raise taxes on anyone making less than $400,000 per year in the background. Perhaps the Biden administration will recognize this and eventually adjust the brackets to fix the marriage penalty issue.

2 of 7

Raise the Capital Gains Tax

picture of computer screen with stock market charts showing market increasespicture of computer screen with stock market charts showing market increases

The American Families Plan also calls for an increase in the capital gains tax rate for people earning $1 million or more.

Currently, gains from the sale of stocks, mutual funds, and other capital assets that are held for at least one year (i.e., long-term capital gains) are taxed at either a 0%, 15%, or 20% rate. The highest rate (20%) is paid by wealthier taxpayers – i.e., single filers with taxable income over $445,850, head-of-household filers with taxable income over $473,750, and married couples filing a joint return with taxable income over $501,600. Gains from the sale of capital assets held for less than one year (i.e., short-term capital gains) are taxed at the ordinary income tax rates.

Under the Biden plan, anyone making more than $1 million per year would have to pay a 39.6% tax on long-term capital gains – which is almost double the current top rate. As noted above, that’s also the proposed top tax rate for ordinary income (e.g., wages). So, in effect, millionaires would completely lose the tax benefits of holding capital assets for more than one year. Plus, there’s the existing 3.8% surtax on net investment income, which would bump the overall tax rate up to 43.4% for people with income exceeding $1 million.

[Note: A summary of the American Families Plan states that application of the 3.8% surtax is “inconsistent across taxpayers due to holes in the law.” It then states that the president’s plan would apply the surtax “consistently to those making over $400,000, ensuring that all high-income Americans pay the same Medicare taxes.” No further details are provided, but this could mean expanding the surtax to cover certain income from the active participation in S corporations and limited partnerships.]

3 of 7

Eliminate Stepped-Up Basis on Inherited Property

picture of a last will and testamentpicture of a last will and testament

There’s another capital gains-related tax increase in the American Families Plan – eliminating the step up in basis allowed for inherited property. Under current law, if you inherit stock, real estate, or some other capital asset, your basis in the property is increased (“stepped up”) to its fair market value on the date that the person who previously owned it died. This increase in basis also means you can immediately sell the inherited property and avoid paying capital gains tax, because there’s technically no gain to tax. Why? Because gain is generally equal to the amount you receive from the sale minus your basis in the property. Assuming you sell the property for fair market value, the sales price will equal your basis…which results in zero gain (e.g., $1,000 – $1,000 = $0).

President Biden wants to change this result. Although details are scarce at this point, the president’s plan would nullify the effects of stepped-up basis for gains of $1 million or more ($2 million or more for a married couple) – perhaps by taxing the property as if it were sold upon death. There would be exceptions to the new rules for property donated to charity and family-owned businesses and farms that the heirs continue to operate. Other yet-to-be-determined exceptions could also be added, such as for property inherited by a spouse or transferred through a trust.

This is one of the tax changes that could impact Americans making less than $400,000 per year – perhaps only indirectly. Anyone, regardless of their own income level, can inherit property. If the heir’s basis is not adjusted upward any longer, that in essence is a tax increase on him or her. If the capital gains tax is levied before the property is transfer, that could mean there’s less to inherit – which could be considered an indirect tax on the person receiving the property. It can be a bit tricky, but there’s certainly the potential for someone inheriting property who makes less than $400,000 per year getting the short end of the stick because of this Biden proposal.

4 of 7

Tax Carried Interest as Ordinary Income

picture of investment fund manager looking at several computer screenspicture of investment fund manager looking at several computer screens

In certain case, an investment fund manager can treat earned income as long-term capital gain. Known as the “carried interest” loophole, this lets the fund manager take advantage of the long-term capital gains tax rates, which are usually lower than the ordinary income tax rates he or she would otherwise have to pay on the income.

The American Families Plan calls for the elimination of the carried interest rules. The Biden administration sees this change as “an important structural change that is necessary to ensure that we have a tax code that treats all workers fairly.”

For a fund manager, this change would result in a potential tax increase on the affected income of up to 19.6%. For example, assuming the income is high enough, he or she could go from a rate of 23.8% (20% capital gain rate + 3.8% surtax on net investment income) to 43.4% (39.6% ordinary tax rate + 3.8% surtax on NII).

One would think that most, if not all, fund managers earn at least $400,000 per year. But if there are any of them out there making less than that amount, then this change could raise taxes on someone making less than Biden’s $400,000 per year threshold. Yeah, it’s not likely…but it’s theoretical possible.

5 of 7

Curtail Like-Kind Exchanges

picture of several office buildings with a for sale sign in front of thempicture of several office buildings with a for sale sign in front of them

If you sell real property used for business or held as an investment and then turn around and buy other business or investment property that is the same type, you’re generally not required to recognize gain or loss for tax purposes under the “like-kind” exchange rules. Properties are of “like-kind” if they’re of the same nature or character. For example, an apartment building would generally be like-kind to another apartment building. This is true even if they differ in grade or quality.

The Biden plan would end this special real estate tax break for gains greater than $500,000. Since there are no income thresholds for the taxpayer, this change could potentially prevent someone making less than $400,000 per year (the $500,000 gain could be offset by other tax deductions, exemptions, or credits). Again, in most cases, wealthier people would be impacted by this change, but it’s possible that someone making less than $400,000 could also end up with a higher tax bill if this proposal became law.

6 of 7

Extend Business Loss Limitation Rule

picture of worried businessman looking at bad financial statementspicture of worried businessman looking at bad financial statements

Under the 2017 tax reform law, individuals operating a trade or business can’t deduct losses exceeding $250,000 ($500,000 for joint filers) on Schedule C. The excess losses may, however, be carried forward to later tax years. This rule is currently set to expire in 2027 (it was also generally suspended by the CARES Act for the 2018 to 2020 tax years).

President Biden’s American Families Plan calls for this business loss limitation rule to be made permanent. According to the plan summary, 80% of the affected business loss deductions would go to people making over $1 million. But, once again, someone making less than $400,000 could also incur a large business loss that wouldn’t be deductible after 2026 if the Biden proposal is adopted.

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Increase Enforcement Activities

picture of yellow road sign saying "IRS Audit Ahead"picture of yellow road sign saying "IRS Audit Ahead"

Biden wants to increase tax enforcement activities aimed at high-income Americans – and give the IRS an extra $80 billion over a 10-year period to do it. While this really isn’t a tax increase, it certainly could result in wealthier Americans pay more in taxes. The idea is to “increase investment in the IRS, while ensuring that the additional resources go toward enforcement against those with the highest incomes, rather than Americans with actual income less than $400,000.” The IRS would also focus resources on large corporations, other businesses, and estates. The audit rate for Americans making less than $400,000 per year wouldn’t increase under the president’s plan.

The American Families Plan summary also states that financial institutions would be required to “report information on account flows so that earnings from investments and business activity are subject to reporting more like wages already are.” The income of wealthier Americans disproportionately comes from investments and small businesses, which are harder for the IRS to verify than other sources of income like wages. As a result, the Treasury Department estimates that up to 55% of taxes owed on some of these less visible income streams goes unpaid. And more of that unpaid tax is owed by people with higher incomes. The proposal would funnel additional information to the IRS about the hard-to-verify income without burdening taxpayers.

All-in-all, the White House claims that the increased tax enforcement efforts would raise $700 billion in revenue over a 10-year period.

Source: kiplinger.com