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The Supreme Court Made it Much Harder to Sue Your Employer as a Group

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This week’s U.S. Supreme Court decision holding that private-sector employees may no longer unite to bring class or collective actions against an employer has shaken the historical ground that workers’ rights stand on.

Some of the nation’s 126 million private-sector workers fear what they see as a reversion to 1920’s and ‘30s “yellow dog” contracts that offered take-it-or-leave-it arbitration agreements during one of our nation’s toughest times for the working class.

Differing views on decision

The decision came on Monday, the vote 5-4, with Justice Neil Gorsuch, who joined the Supreme Court last year, writing for the majority.

While some view the decision as a victory for employers, others see it as a further weakening of the ability to fight for fair employment standards in an economic climate where many Americans are living paycheck to paycheck.

In her dissent, Justice Ruth Bader Ginsburg called the decision “egregiously wrong.”

This ruling comes a year after the 10 largest settlements in employment-related categories reached a record high $2.72 billion, according to the 14th annual edition of the Workplace Class Action Litigation Report by Seyfarth Shaw LLP, a Chicago-based law firm. The aggregate settlements of the top 10 are almost $1 billion more than they were in 2016, despite 2017 being a more favorable year overall for employer rather than employee victories, the 2018 report notes.

“I think it’s going to potentially reduce a lot of very costly litigation for employers,” said

Suzanne Boy, an employment law attorney with Henderson Franklin Attorneys at Law in Fort Myers, Fla. “While it certainly does not erase the employees right to bring a claim, it just limits the potential for them to bring them as a group essentially.”

Attorney Benjamin Yormak, who represents employees and is a board-certified expert in labor and employment law, noted that the point of a class or collective action is to streamline the litigation for consistency in the results and to save on costs.

“But the ruling from the Supreme Court does the exact opposite,” said Yormak, an attorney based in Bonita Springs, Fla., who often represents employees with wage and hour disputes.

While Yormak said he believes wage and hour litigation will be the hardest hit, other workplace conditions could become more difficult to fight as well.

Some members of Congress and candidates for office voiced their concerns this week on social media.

What’s changed?

The Federal Arbitration Act, enacted in 1925, specifies that agreed-upon individual arbitration contracts must be enforced, unless that agreement violates another federal law, which, according to those on the dissenting side, is the National Labor Relations Act, which was enacted 10 years later.

The NLRA provides “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

In what Yormak calls an “epic case,” the problem is that the NLRA and the FAA “are not in harmony with one another on this issue.”

Both sides were looking for direction from the Supreme Court, but the outcome was not what he and employees such as those he represents had hoped for, Yormak says.

Who’s affected by the ruling?

Expect a dramatic increase in the number of employers who require arbitration agreements to be signed by their employees, both Boy and Yormak said.

The Economic Policy Institute, a Washington, D.C., nonprofit think tank, notes: “For over eighty years, the National Labor Relations Act has guaranteed workers’ right to stand together for ‘mutual aid and protection’ when seeking to improve their wages and working conditions. However, today’s decision clears the way for employers to require workers to waive that right as a condition of employment.”

According to the EPI, 56.2 percent of private sector employees are already subject to arbitration proceedings that are laid out by their employer, and of those employers, 30 percent include a class-action waiver.

With this new ruling and the number of employers who require such agreements projected to rise sharply, the ways they might implement them could be less-than-transparent, such as the blanket take-it-or-leave-it policies emailed to employees that sparked the three cases that were consolidated by the Court and that served as the basis for the decision.

What you can do

The EPI is asking Congress to ban mandatory arbitration agreements and class and collective action waivers.

“Workers depend on collective and class actions to combat race and sex discrimination and enforce wage and hour standards,”Celine McNicholas, Director of Labor Law and Policy for the EPI said in a statement. “It is essential to both our democracy and a fair economy that workers have the right to engage in collective action.”

For employees, attorneys recommend having awareness and taking a few steps, such as these:

  • Watch out for class-action waiver. “If an employee is presented with an arbitration agreement, he or she should certainly look closely as to whether or not one of these waivers is in there, because they may not be,” said Boy. She adds that if an employee refuses to sign it, an employer can rescind the job offer.
  • Find out the financial ramifications. Boy advises employees to look at the ramifications from a cost perspective, such as how the cost shifting is defined and if it’s split in half between employer and employee.
  • Pay attention to other provisions. Determine if there is a jury trial waiver or what kind of confidentiality is included in the arbitration agreement.

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Where Most People DIY Their Taxes and Tips for Last Minute Returns

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A new MagnifyMoney analysis found that 45% of Americans file their taxes without paid help, while the other 55% rely on a paid tax preparer. The analysis is based on IRS statements of income data for returns filed Jan. 1, 2012 – Dec. 31, 2016.

Taking the DIY approach to taxes is most popular in these metro areas: Austin, Texas (62%); Virginia Beach, Va. (61%), Seattle, Wash. (59%), San Antonio, Texas (58%), Richmond, Va. (58%), and Portland, Ore. (56%).

For those taking their taxes into their own hands, using tax preparer software is a perfectly fine alternative. The IRS expects 155 million tax returns to be filed this year and 70% of tax filers are expected to receive refunds. However, missing even one simple detail on your return could make a big difference in your refund.

At the very least, to avoid errors, the IRS recommends e-filing for DIY preparers. It takes out some of the risk for human error, especially since most e-filing programs can help spot mistakes. If you’re comfortable preparing your own taxes, there are some last-minute tax tips to follow as you near the April 17 deadline.

DIY vs. PRO: Which is best for you?

The DIY approach is smart for people with simple personal taxes, where you basically can copy and paste information into the return, said Eric Nisall, founder of accountlancer.com, which provides accounting and bookkeeping for freelancers. For example, if simply have a W-2 from your employer and you don’t itemize deductions or have investments, you could definitely do it yourself.

Online programs continue to offer new features to help customers comprehend their taxes as they go, such as prompts nudging them to fill out missing information, or explaining why certain information is needed

A DIY approach also works if you keep organized throughout the year with receipts and statements, and if you are comfortable going through those details to correctly enter your taxes.

On the flip side, you should probably consider hiring a paid preparer if you are concerned about the difficulty of filing a tax return, have complicated financial information or want to develop a long-term accounting strategy.

Where to find help

There isn’t just one catch-all category for tax preparers today. Preparers include enrolled agents, attorneys and CPAs.

If you’re simply looking for someone to crunch the numbers for you and make sure your taxes are submitted accurately and on time, a basic tax preparer or an IRS-enrolled agent is a perfectly fine solution. They will usually charge a flat rate for filing your taxes (it will vary by location).

If you are looking for a more well-rounded tax preparer who can also offer long-term guidance on your tax strategy, you should seek out a certified public accountant.

“A good CPA won’t just fill in the forms,” said Steve Osiason, a certified public accountant and member of the Florida Institute of CPAs. “A good CPA will give you advice going forward about what you should be doing to save money.”

If you do decide to hire a professional, make sure it’s a reputable preparer who is transparent about their pricing, Nisall said.

He said some tax preparers will charge on such arbitrary basis as per-form completed (some of which take just a few check boxes to complete), or based on what you made in the previous year.

Ask for a list of their qualifications, proof of licensing and if they keep up with changes by taking continuing education classes. At the very least, ask for referrals from trusted friends, family or work colleagues. Some firms may even have Yelp review pages where you can see how past customers have rated their service.

The IRS also has a helpful tool you can use here: Directory of Federal Tax Return Preparers.

Don’t rush

Rushing through a meticulous task like filing taxes can mean a smaller return or no return at all.

“That’s where people make the biggest mistakes,” said Nisall.

If you do feel like you’re crunched for time and may not finish by the deadline, Nisall recommends filing for an extension early. He warns not to confuse the automatic extension to file (Form 4868) with an extension to pay; you are still required to pay an estimate by the deadline.

However, if you still don’t have enough time to pay, there’s more good news.

“If you owe money, you can also ask the IRS for an installment agreement when you file your taxes,” said Lisa Greene-Lewis, a CPA with TurboTax. “The installment agreement will allow you to pay your tax debt over six years.”

 

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What to Know Before You Sign Up for a Payday Advance Program

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

 

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At a time when the economy is booming and yet, 46% of U.S. adults still say they can’t cover a $400 emergency, it’s clear many Americans are living paycheck to paycheck. In the past, when money was tight and credit cards were maxed out, people could turn to payday lenders and pawn shops for quick access to cash, often paying exorbitant fees in the process.

Now, several companies have rolled out new services that let workers access their paycheck early through mobile banking apps in order to make ends meet. These services can provide much-needed relief to cash-strapped workers. But we wanted to take a closer look at what they have to offer and whether or not they’re the best option for fast cash.

In late 2017, Walmart announced a new partnership with two Silicon Valley start-ups aimed at giving 1.4 million workers access to financial planning tools.

The first app Walmart workers can access for now is called Even, which, similar to apps like Instant and Earnin, allows users to be paid early for hours they’ve worked.

With Instant, you connect the app with a card given to you by your employer. Once verified you can receive your daily tips and wages, deposited straight to your Instant account, which you can use to check your balance, use ATMs, review wages, and even transfer money to another bank account. The only fee is an easy-to-avoid, 90-day inactivity fee.

Similarly, Earnin allows access to up to $100 per day of your earned pay and works on a tip basis with no fees or interest. You simply connect your bank and employment information, and then you can choose how much of your paycheck to deposit to your bank account, and that amount is debited back when payday arrives.

In Walmart’s deal with Even, workers can use Even’s “instapay” option to receive a portion of the wages they earned before the scheduled paycheck (within the typical two-week pay period) up to eight times per year for free. If your employer doesn’t cover the cost of the app, it’s $2.99 per month after a free 60-day trial, and if you subscribe to Even Plus, there are additional fees that are dependent on what your employer covers for you. Walmart employees monthly costs are covered by the company and they can take advances on hours they’ve already worked before the two-week pay period is over.

Walmart is certainly one of the biggest retailers to announce such an offering, but it isn’t the first. Instant has clients across the U.S. and Canada, including McDonald’s, Outback Steakhouse, and Dunkin’ Donuts, according to a company spokesman.

José Alcoff, director of the Stop the Debt Trap coalition at Americans for Financial Reform, says there are many employer-based loan and paycheck advance programs across the country, many of them offering the service at no interest. Although it’s a nice gesture for workers who are living paycheck to paycheck, it’s not a long-lasting solution for chronic financial insecurity, he warns.

“A payday advance program may or may not be a responsible lending solution, but it is not a solution to poverty and to the kinds of financial crunch that a lot of low-income workers have on a daily basis,” Alcoff said.

An alternative to payday loans and overdraft fees

A payroll advance program can be a good alternative to higher-cost options like payday loans or title loans that provide small-dollar loans. Small-dollar loans are often the best option to help manage financial gaps or unexpected expenses, says Dennis Shaul, CEO of the Community Financial Services Association of America, a Virginia-based organization that represents nonbank lenders and service providers.

Payday loans from a store, bank or website are packaged as two-week, flat-fee products but in reality, have unaffordable lump-sum repayment requirements, according to The Pew Charitable Trust’s “Payday Lending in America” series.

According to Pew, 12 million American adults used payday loans in 2010, with the average borrower taking out eight loans of $375 each and spending $520 on interest. The borrower is actually being indebted for five months out of the year.
The troubling thing about payday loans is that for a product that can so quickly become a debt trap, the reasons people use them are typically to cover day-to-day expenses.

According to Pew, 69% of borrowers use their payday loans for everyday expenses like food, utilities and rent, and 16% for unexpected car and medical expenses.

Companies offering payday advances seek to help their employees avoid paying interest on payday loans.

Other benefits for employees who have access to payroll advance apps include tools to help budget and plan ahead to pay bills, which can help people avoid late fees and overdrafts from their bank account. Employees, especially in occupations like the restaurant industry where pay varies depending on the season and shift, also would know in real time how much money they have to spend.

The risks of using a payday advance program

While it may seem like the easiest way to manage your financial stress, getting an advance on your pay could potentially push you into a cycle of debt if you’re not careful.

“Most borrowing involves multiple renewals following an initial loan, rather than multiple distinct borrowing episodes separated by more than 14 days,” according to the Consumer Finance Protection Bureau.

While this refers to payday loans, the same principle applies to payday advances. Some companies offer access to a payday advance program as a benefit at no extra cost, but once you go beyond the basic benefit, you could face an additional charge (like the $3 per pay period subscription to Even Plus).

Alcoff says a living wage and full benefits package that allows workers to live with dignity is the only solution to many low-income workers’ financial woes.

“The more workers are stuck in pay loans and to debt-trap loans, the harder it is for them emotionally and their health and their abilities to make ends meet for their children,” he said, “and the more that that comes back to haunt employers, who are often the ones who see lower productivity and more stress in the workplace.”

Any individual interested in their employer’s payday advance programs should read the fine print. For example, look to see if you are relinquishing access to your bank account to your employer.

“Don’t take it for granted that your company has your best interests at heart,” Alcoff said.

 

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How Trump’s Tax Reform Could Impact Your 2017 Taxes

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

 

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The U.S. hadn’t passed major tax reform since the Reagan era, but that streak ended when the Trump administration’s Tax Cuts and Jobs Act of 2017 was signed into law in December.

Thanks to corporate tax cuts included in the bill, American businesses have seen billions of dollars worth of savings already. The result for the average taxpayer is less certain and depends on many factors.

“Some will save some, some will lose some,” said Steven H. Osiason, a CPA in Tampa, Fla., and a member of the Florida Institute of CPAs.

Nevertheless, most changes under the new law went into effect Jan. 1, which means workers should consider at least reviewing their tax strategy for 2018 now — or run the risk of underpaying or overpaying their taxes this year.

While tax reform won’t change your 2017 filing much (save for an exemption for major unreimbursed medical expenses), 2018 is a much different story. There are three major differences will affect the majority of Americans when they file their taxes for 2018:

  • The standard deduction has doubled from $6,350 to $12,000 for single filers and from $12,700 to $24,000 for married couples filing jointly. Because the standard deduction is so much higher, it may make less sense for many taxpayers to itemize their deductions for 2018.
  • Meanwhile, the personal exemption, each $4,050 for you, your spouse and any dependents, has been removed. However, Amy Wang, senior manager for tax policy and advocacy for the American Institute of CPAs, says the new or expanded provisions will counteract the loss of the personal exemption and other cuts.
  • The state and local tax deduction (aka the “SALT” deduction) was not eliminated entirely, meaning you can still deduct your real estate, sales and city and state income taxes if you itemize. However, the bill places a $10,000 limitation on that deduction. Previously, the amount was unlimited.

Check out this quick explainer from MagnifyMoney for a comprehensive look at the tax changes.

Whether you stand to benefit or not from the new bill, Wang says it will simplify taxes for a lot of people.

Even if you haven’t turned in your 2017 taxes, it’s smart to be aware from now of major changes and plan for next year’s tax season.

What to expect from your 2017 taxes

More pay in your pocket. A change in tax brackets, plus the doubling of the standard deduction, could boost your take-home pay this year.

Unless you are a single filer who makes less than $9,525, married filing jointly with an income of less than $19,050 or head of household making less than $13,600, you’ll see a drop in the taxable portion of your income.

What that means now is that you should be seeing a slightly larger paycheck, or you might get a larger return next year, says Wang.

Wang says the IRS required all employers to make changes to their employees tax withholdings by February 2018. While you should be seeing changes, you should compare your most recent pay stub with the IRS withholding calculator.

“It’s important because you want to make sure that you are paying enough taxes,” said Wang.

Tax deductions: Some drop off the list. While the increase of the standard deduction will result in more individuals and couples opting out of itemizing, those who are itemizing will face some serious cuts in what’s available to deduct.

“Those hit hardest are people in high income-tax states because you’re limited to a total deduction on itemizing of $10,000,” said Osiason. “That includes the sum of all your real estate taxes, sales tax and state and city income tax.”

In addition to a new cap on the previously unlimited SALT deductions, the amount you can deduct from your mortgage interest is lowered as well. You can now only deduct the interest on a mortgage that is $750,000 or or less, which is down from $1 million. On the bright side, the former $1 million cap continues to apply to homeowners who took out their mortgages on or before Dec. 15, 2017, as well as mortgage refis completed on or before Dec. 15, 2017, as long as the new mortgage amount does not exceed the amount of debt being refinanced.

Tax reform completely cuts several other deductions, including moving expense deductions (with the exception of active military personnel moving due to military order), tax prep deductions and disaster deductions (unless the damage was due to a federally declared disaster).

Also, the requirements for out-of-pocket medical expense deductions changed. Now, you can only deduct out-of-pocket medical expenses that are 7.5% higher than your adjusted gross income. Previously, that threshold was set at 10%.

Again, the loss of these deductions might sting but not too badly, given the fact that the GOP decided to raise the standard deduction.

Tax credits and more: Child care, others enhanced. One of the most significant changes, and one that helps balance out the loss of the personal exemption for many people, is the doubling of the child tax credit. Having never been adjusted for inflation, the credit is now up from $1,000 to $2,000. Additionally, $1,400 of that is refundable, whereas before it was just a deduction.

There is also a new $500 credit if you support a non-child dependent, such as an elderly parent or child over 17.

Funds from 529 accounts that could previously only be used for college tuition can now be used (up to $10,000) for enrollment in K-12 public, private or religious schools.

Wang notes that many of the tax law changes are set to expire in 2025, and are adjusted for inflation.

For example, the estate and gift tax has been doubled, so the basic exclusion amount has been extended from $5 million to $10 million for descendents dying or for gifts made after Dec. 31, 2017 and before Jan. 1, 2026.

Osiason warns that if you’re expecting a refund next year, don’t expect a quick one.

“The IRS will be behind schedule getting all the forms ready,” he said. “It’s such a massive change. The IRS has to write the regulations, figure out how to actually apply the rules and then redo so many forms.”

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Kat Khoury is a writer at MagnifyMoney. You can email Kat here

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Amazon Wants to Own Your Checking Account Now, Too

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Buying groceries, listening to your favorite audiobook, researching or watching TV … whatever activity you were engaged in today, there’s a good chance Amazon played a hand in some part of it. And now the online retail giant wants to be there for your banking needs, too.  

In a recent report by The Wall Street Journal, sources revealed Amazon is in talks with two of the country’s largest banking giants, JPMorgan Chase & Co. and Capital One Financial Corp., to develop a potential checking account product.  

The company’s idea, according to the anonymous sources, is to create a basic checking account as well as provide an option for individuals without traditional bank accounts. This could result in two offerings — a simple checking account and a prepaid debit card — but the company hasn’t officially announced anything yet, so we won’t know for sure until then.  

It’s unknown whether the bank-like service would offer paper checks, direct bill paying or access to a nationwide ATM network.  

Amazon isn’t the only major retailer looking to get into the finance game. Walmart announced in 2014 its low-cost checking account service GoBank, a brand of Green Dot Bank. 

The FDIC-insured banking option through Walmart boasts no overdraft fees, no bounced check fees and no continuing minimum balance requirements. Additionally, there’s an $8.95 monthly fee that is waived altogether if you have a payroll or government direct deposit each month of at least $500.  

 More Amazon moves

It’s hard to imagine a time when Amazon was just a bookseller. Since it first went public in 1997, the company is now ranked the no. 1 online store in the nation, a constant source of innovative new technology with sales of $178 billion in 2017 alone.  

In August 2017, Amazon finalized its acquisition of Whole Foods, solidifying itself in its customers’ lives as a brick-and-mortar store. The company also began offering 5% cash back to Whole Foods shoppers who use the Amazon Prime Rewards Visa® Signature Card.

In January 2018, the company took a step further with the release of its first cashless grocery store in Seattle. Artificial Intelligence and cameras throughout the store track customers and what they pick out, allowing for a seamless “just walk out” approach to grocery shopping.  

Amazon has surpassed Microsoft in market capitalization, with its value currently standing at over $747 billion vs Microsoft’s $722 billion, and with the support of its customers, doesn’t look like it’s slowing down anytime soon. 

The retail (and now services) giant, could venture into several industries with as much enthusiasm from customers as there is for the possible new checking-account option.  

If Amazon were to expand into other services like health care, insurance, lending, investing and even its own form of cryptocurrency, there are plenty of people who are already on board.  

In a recent survey by LendEDU, 44.5% of respondents said they would trust Amazon as their checking account provider; 52% are open to an Amazon-based virtual currency; 38% trust the company as much as a traditional bank; 30.5% would utilize an Amazon investment service; and 36% would trust them with their retirement account. The trend is similar for lending services like mortgage, auto and personal as well as insurance options for health, auto and life.  

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Tax Tips for Hurricane Victims

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The 2017 hurricane season wreaked havoc across the Southeast, but for those living in federally declared disaster areas, special disaster tax relief is available.

Three Category 4 hurricanes — Harvey, Irma and Maria — ravaged parts of the continental U.S., Puerto Rico and the U.S. Virgin Islands in 2017. Those storms alone caused about $265 billion in damages, according to estimates from the National Oceanic and Atmospheric Administration, and they weren’t the only ones. There were a total of 16 billion-dollar climate disasters in the U.S. in 2017, the NOAA reports.

States up the coast and as far inland as Tennessee felt the effects of the hurricanes. The U.S. Census Bureau says that Harvey affected nearly 22 million people, Irma affected more than 53 million and Maria affected about 3.7 million. Texas, Florida, Puerto Rico and the U.S. Virgin Islands bore the brunt of the damages, as that’s where the storms made landfall, but many residents also endured flooding and power outages in Alabama, Georgia, Louisiana, Mississippi and South Carolina.

Special tax provisions for both individuals and businesses can offset the impact of the three storms’ impact on millions of people under The Disaster Tax Relief and Airport and Airway Extension Act of 2017.

Under the act, deadlines for taxes like quarterly, payroll and excise were extended from Fall 2017 or early January deadlines to Jan. 31, 2018. In Florida, corporate returns and payments were extended to Feb. 15, 2018.

B. Trevor Wilson, partner in the tax and estates practice group at Jones Walker in Baton Rouge, La., says most returns qualify for relief, but filing documents like 1099s and W-2s, which are known as information returns, are not eligible for a deadline extension.

Here are key ways that residents in hurricane-stricken areas can take advantage of disaster tax relief.

You can claim personal casualty losses

Generally, you can’t claim personal casualty losses when doing your taxes, unless you meet certain qualifications, itemize your deduction and your loss exceeded 10 percent of your adjusted gross income (AGI), says Eric Smith, a spokesman for the IRS.

If you suffered damage from Harvey, Irma or Maria, and your uninsured, unreimbursed loss exceeds $500, you can claim it on your standard return without itemizing.

“Most people who suffered significant damage from these hurricanes were probably going to clear that threshold pretty easily,” said Smith.

Though it’s been updated, the aid is similar to tax relief provided after 2005’s Hurricane Katrina, says Smith.

There also are provisions for business owners. Though they vary slightly from individual relief, Wilson says one difference is there is no threshold for loss, so the first uninsured, unreimbursed dollar of loss can be claimed.

How to prove your losses

It may seem like a difficult task to determine your loss, but there are tools to help.

Even if you haven’t had a recent appraisal on your home, Smith says IRS formulas can help you determine the amount of loss you can claim. Different tables help calculate damage to your roof, decking and the structure of your home; the cost of interior flooding; and if it was a near or total loss.

IRS revenue procedures provide eight safe harbor methods for taxpayers to use in determining their losses, three of which are specifically for assessing losses due to federally declared disasters and one specifically for Harvey, Irma and Maria victims. Six of the methods apply to personal residential property and two apply to personal belongings. Here’s an overview of the methods:

For losses of personal-use residential real property

Personal-use residential real property includes property that contains at least one personal residence and is owned by someone who suffered a casualty loss (like a hurricane). For these purposes, a personal residence includes single-family homes and individual units of attached properties (like a townhouse or duplex). Owners of condominiums, co-ops and some mobile homes are out of luck — people who don’t own the structural features of their property (like the walls, foundation or roof) don’t qualify. The property is also not considered personal-use residential property if any part of it is used as a rental property or home office for a for-profit business.

As you can tell from the complicated definition above, figuring out if you can claim these losses on your taxes can get tricky — there are lots of rules to follow and exceptions to be aware of. Work with a tax professional to make sure you’re doing it correctly.

Estimated Repair Cost Safe Harbor Method

This method is for losses of $20,000 or less. You have two independent contractors prepare itemized estimates of the costs required to restore your property to its pre-casualty condition. You use the lesser of the two estimates to determine your cost.

De Minimis Safe Harbor Method

This method is for losses of $5,000 or less. You can determine the loss on a good-faith basis, but must keep records of the methods used to determine loss.

Insurance Safe Harbor Method

This method allows an you to use the estimated loss as determined by your homeowners or flood insurance report.

Contractor Safe Harbor Method

This method allows you to determine the decrease in the fair market value of your property by using the contract prices for repairs by an independent contractor. It must be a binding contract signed by both you and the contractor, who is licensed and registered in accordance with state or local regulations.

Disaster Loan Appraisal Safe Harbor Method

Using this method, you can determine the decrease in your property’s fair market value using an appraisal that was prepared for the purpose of obtaining federal funds or federal government loan.

Cost Indexes Safe Harbor Method

This method provides cost indexes for properties based on square footage and geographical area. If you own two or more properties and use this method for one, you do not have to use the cost index method or any other safe harbor method for any other property.

For losses of personal belongings

For these purposes, personal belongings are items owned by people who suffered casualty losses, as long as those items are not used for business and do not maintain or increase in value over time (like antiques). Things like boats, aircrafts, mobile homes, trailers and vehicles are not considered personal belongings in this situation.

De Minimis Safe Harbor Method

This method is for losses of $5,000 or less. Similar to the same method used for property loss, you can determine your loss on a good-faith basis. You must keep records detailing the personal belongings affected and the methodology used to determine loss.

Wilson says one way to calculate the loss of personal items is to use third-party prices from resellers like Goodwill, which publishes its prices as reference.

“Something you’ve had for five years is not worth something you bought brand-new,” he added.

Replacement Cost Safe Harbor Method

Using this method, you can determine the decrease in fair market value of personal belongings by estimating the cost of replacing each item minus 10 percent for each year the item was owned. If owned for nine or more years, the pre-disaster value is 10 percent of the cost of replacement. If using this method, you must apply it to all personal belongings that are claimed as a loss for that disaster.

You can borrow from your qualified plan

Special provisions allow hurricane victims to take penalty-free hardship withdrawals from qualified plans like their 401(k). For example, if a person is less than 59 ½ years of age, there is typically a withdrawal fee of 10 percent. But under the new law, the fee is waived and the amount you’re allowed to borrow increases to either $100,000 or 100 percent of the account balance, whichever is lower. (The limit is usually $50,000.)

“Generally, you have limitations on what you can use loans for and your employer must allow for them,” said Wilson, “but this relief kind of overrides all that and gives you quicker access to your 401(k) plan for loans.”

Smith says using this option is an individual decision. Although it could be helpful, make sure that there isn’t another option that doesn’t deplete your retirement fund.

If it is something you feel comfortable doing, the typical five-year repayment period can be extended an extra year, as well.

You can file for this year or the previous year

“One of the things that’s unique about disaster area loss claims is that you can choose to report it for the year that it happened, or the prior year,” said Smith. “It sets up a different situation than what normally occurs in the tax world.”

The process can take a while, because you have to prepare an amended tax return on paper, he says.

If your income looks the same on your 2016 and 2017 returns, Smith recommends filing for 2017. However, if your income or tax bracket changed and amending 2016’s return would yield a bigger refund, that option is available.

Whether you choose to file an amended return for 2016 or claim your losses on your 2017 tax return, the IRS says to write your state and the hurricane(s) you are claiming casualties from at the top of your return, such as “Texas, Hurricane Harvey.”

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Report: IRS Debt Collection Program Cost Taxpayers Millions

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

tax debt collection by the irs
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In its first year in operation, a new IRS program that was meant to outsource federal tax debt collection efforts ultimately cost U.S. taxpayers three times more than it actually recovered.

The findings were published in a Jan. 10 report by the National Taxpayer Advocate (NTA), an independent consumer advocacy arm of the IRS.

In 2015, federal lawmakers enacted legislation that required the IRS to outsource its tax debt collection efforts to private collection agencies. The agency hired four agencies to do the job and spent a total of $20 million to cover program operations. The agencies were charged with collecting $920 million in unpaid debt but, ultimately, they managed to recoup a mere fraction of that amount — $6.7 million in recovered tax debts, according to the report.

Read more: Tax Reform 2018 Explained

After its first year, the current attempt has resulted in a net loss of $13.3 million with less than 1 percent of unpaid tax debt collected.

Consumer advocacy groups like the National Consumer Law Center (NCLC) were quick to cry foul, saying the report’s findings show that the program needlessly wasted money and abused taxpayer rights.

“The IRS private debt collector program is the epitome of waste and abuse in government programs,” said Chi Chi Wu, a staff attorney at the NCLC in a statement.

It’s not the first time the U.S. government has outsourced debt collection efforts to private firms. The NCLC notes that an effort in the mid-1990s lost $17 million and was cut after a year. Another attempt to outsource debt collection in 2006 lasted three years and lost $4.5 million.

Among the taxpayers who were most impacted by this latest private collection program are families hovering just above the poverty line, those beneath it, and retirees who are on Social Security or receive disability benefits.

The report found:

  • 4,905 taxpayers were assigned to private collection firms, and of those, 4,141 filed recent returns by Sept. 28, 2017.
  • 44 percent of those taxpayers had incomes below 250 percent of the federal poverty line ($24,600 for a family of four).
  • 28 percent had an annual income of less than $20,000
  • 19 percent had a median annual income of $6,386
  • 5 percent received Social Security or disability and had a median income of $14,365
report finds IRS private tax debt collection cost more than recouped
Source: Taxpayer Advocate Service

When you owe a tax debt to the IRS, the IRS typically calculates payment plans so that a family can keep up necessary living expenses like housing, transportation, utilities, food, and out-of-pocket health care after making their tax debt payment. However, NTA states that the data shows that these taxpayers were still pressured by the private collection firms hired by the IRS to enter into payment plans they couldn’t afford.

“Forcing the IRS to use private debt collectors to put the squeeze on vulnerable low-income families simply lines the pockets of these private collectors while jeopardizing the economic well-being of families,” said Wu.

Further insight into the problem is difficult to obtain, the NTA says, because the IRS refuses to let representatives of the organization listen to calls between private debt collectors and taxpayers.

Where do the recovered tax debts go?

Under this program, the IRS would send a 10-day notice to taxpayers letting them know a private debt collector will be assigned to them. Of the $6.7 million collected by PCA’s in 2017, $1.2 million, or 18 percent, was recovered as a result of those letters.

Private firms are not supposed to receive a commission off of collected debts. But the NTA study states that the private debt collectors are receiving commission for work done by the IRS and the agency “has no plans to change its procedures to attempt to identify payments that were clearly not attributable to PCA action.”

The IRS is authorized to keep 25 percent of the amount collected by the private agencies and the agencies themselves receive 20 percent in commission. Of the unpaid taxes collected by PCAs, $3 million is the minimum amount left that goes to the Treasury.

What do I do if debt collectors call?

If you’re called by a debt collector, there are several things to know. First, that you have rights, and second, that you need to know more.

The Consumer Financial Protection Bureau (CFPB) states certain laws related to debt collection are put in place to protect taxpayers’ privacy and security. For example, they can’t call before 8 a.m. or after 9 p.m. and they can’t harass or threaten you. In addition, if you have an attorney,  the debt collector will need to contact them instead of you.

You also should check with your state attorney general’s office to see if it offers any additional protection or help for dealing with debt collectors.

Keeping track of your documents is also important. Any communication between you and the debt collector, including letters you may have sent, should be kept in a file that starts when the collector calls, the CFPB suggests.

Identifying the debt collector can save you from taking on a debt that isn’t yours or entering into a less-than ideal payment plan. The CFPB suggests that you don’t give any information, personal or financial, until you’ve verified the collector’s name, address, phone number, and all information about the debt, such as whether it’s yours or not, any dates associated with it, and the total amount including any fees.

What happens if I owe a tax debt?

If you owe a tax debt, you should act sooner rather than later. Unpaid tax debts can not only result in extensive penalties and fees but it could result in:

Reduced Social Security benefits

  • Garnished wages
  • Seized property
  • Passport revocation

Interest is compounded daily on past due taxes (the rate fluctuates, but is 3% more than the federal short-term rate) and late payment penalties are charged separately and can go as high as 25% of the owed amount.

If you owe a tax debt, you still have to file your taxes on time.

If you can’t pay, the worst thing to do is ignore the bill. Contact the IRS and ask them to set up some kind of payment plan that you can afford.

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These 18 States Are Raising the Minimum Wage in 2018

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

states raising minimum wage 2018
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Roughly 4.5 million workers in 18 states are starting off the new year with a pay raise.

Many of the new minimum wages are significantly higher than the federal minimum wage of $7.25, a rate that states are slowly but surely leaving behind. The Wage and Hour Division of the Department of Labor enforces wage laws, but a new federal minimum wage cannot be set unless a bill is passed by Congress and the president signs it into law.

Since 2009, the last time the federal minimum wage was raised, states have had to act independently to counter rising costs of living as well as the demands of their citizens.

Some 80 million Americans are paid hourly — a group that makes up nearly 59 percent of all wage and salary workers.

The number of people who earned the federal minimum wage or less decreased from 3.3 percent in 2015 to 2.7 percent in 2016, according to the U.S. Bureau of Labor Statistics. The 2016 percentage is far less than in 1979, when records started to be kept consistently and the number of people at or below minimum wage was 13.4 percent.

The 2018 wage increases were, for eight states, due to cost-of-living increases, and for 10 states, a result of approved legislation or ballot initiatives.

Who gets more pay?

An estimated 4.5 million U.S. workers are set to receive a total of $5 billion in additional wages, according to the Economic Policy Institute.

“Increasing the minimum wage is a crucial tool to help stop growing wage inequality, particularly for women and people of color who disproportionately hold minimum wage jobs,” wrote Janelle Jones, an economic analyst with the Institute. “As low-wage workers face a growing number of attacks on their ability get a fair return on their work, Congress should act to set a higher wage floor for working people.”

Keep in mind, however, that tipped wages are significantly lower than minimum wages, and wage laws have exceptions, such as full-time students or persons with disabilities. Not every employee who works on an hourly basis is affected by the changes.

Where is the minimum wage increasing?

Here’s a breakdown of the 18 states with higher minimum wages in 2018, using information from the National Conference of State Legislatures. These states join the 19 states in 2017 that raised their minimum wages.

State

Minimum Wage

Reasons and Future Adjustments

Alaska

$9.84

Change due to cost of living.

Arizona

$10.50

Change due to ballot/legislature.
Set to increase to $11 beginning 2019 and $12 in 2020. At the start of 2021, the rate will increase annually based on cost of living.

California

$11

Change due to ballot/legislature.
Set to increase to $12 in 2019, $13 in 2020, $14 in 2021, and $15 in 2022. At the start of 2023, the rate will increase annually based on the consumer price index.

Colorado

$10.20

Change due to ballot/legislature.
Set to increase to $11.10 in 2019 and $12 in 2020. At the start of 2021, the rate will increase annually based on the cost of living.

Florida

$8.25

Change due to cost of living, based on a 2004 constitutional amendment.

Hawaii

$10.10

Change due to ballot/legislature.

Maine

$10

Change due to ballot/legislature.
Set to increase to $11 in 2019 and $12 in 2020. At the start of 2021, the rate will increase annually based on the consumer price index.

Michigan

$9.25

Change due to ballot/legislature.
At the start of 2019, the rate will increase annually based on the consumer price index, but increases will cap at 3.5 percent.

Minnesota

$9.65/$7.87

Change due to cost of living.
Due to 2014's HB 2091, businesses with annual sales over $500,000 have a higher minimum wage than those with sales under $500,000.

Missouri

$7.85

Change due to cost of living.

Montana

$8.30/hr for businesses with annual sales over $110,000
$4/hr for businesses with annual sales under $110,000.

Change due to consumer price index.

New Jersey

$8.60

Change due to consumer price index.

New York

$10.40

Change due to ballot/legislature.
Set to increase to $11.10 beginning Dec. 31, 2018, $11.80 in 2019, and $12.50 in 2020. At the start of 2021, the rate will increase annually for inflation, capping at $15. Across the state, the minimum wage varies geographically, and by employer size within New York City.

Ohio

$8.30 for businesses with annual sales over $299,000
$7.25 for businesses with annual sales under $299,000

Change due to consumer price index.

Rhode Island

$10.10

Change due to ballot/legislature.
Set to increase to $10.50 beginning 2019.

South Dakota

$8.85

Change due to cost of living.

Vermont

$10.50

Change due to ballot/legislature.
At the start of 2019, the rate will increase annually by the smaller of two options: the consumer index price or 5 percent. The minimum wage cannot be decreased.

Washington

$11.50

Change due to ballot/legislature.
Set to increase to $12 in 2019 and $13.50 in 2020.

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7 Holiday Debt Traps that Can Sabotage Your Finances

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

holiday debt traps
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For some consumers, the cheer of the holiday season soon will be replaced with dread over debt.  

Holiday shoppers in 2016 took on an average of $1,003 worth of debt, up from $986 in 2015, and 11 percent said they would only be making the minimum payments, which can extend the payoff date by years.  

“Consumer debt is at the highest of all time,” says Howard Dvorkin, CPA and chairman of Debt.com.

Total household debt rose to a record $12.96 trillion for the third quarter of this year, according to data released in November by the Federal Reserve Bank of New York. Credit card debt, for example, rose by 3.1 percent, to $808 billion. 

Dvorkin expects that this holiday season will be expensive as consumers make more online purchases with credit cards and because of overall optimism about the economy. 

Retail holiday sales were expected to grow to $1.04 trillion-$1.05 trillion in 2017, according to Deloitte’s annual holiday retail forecast. Deloitte also projects that e-commerce sales during the holiday season will grow to $111 billion-$114 billion, an 18-21 percent increase from the 2016 holiday season, and 55 percent of survey respondents planned to shop online for gifts. 

“When people feel really good about things, they tend to spend more,” Dvorkin says.   

Bruce McClary, vice president of communications at the National Foundation for Credit Counseling, says people have a tendency to overspend during the holidays, relying heavily on credit cards and not paying off the debt until later, sometimes even years later.   

McClary has also noticed that credit card delinquencies have been increasing slightly over the last two quarters. The Federal Reserve Bank notes in its report that “credit card balances increased and flows into delinquency have increased over the past year.”
 

While most Americans are aware and ready to spend a little extra during the holiday season, you can make it a little more merry by avoiding these common debt traps.  

Keeping up with the Joneses

Holiday purchasing pressure ranges from buying the hottest toys to giving (or buying for yourself) the latest tech gadget or the biggest TV on the block. People are tempted to get the latest and greatest, Dvorkin says. 

The average consumer spent roughly $967 on holiday shopping in 2016, up 3.4 percent from 2015, according to the National Retail Federation. Deloitte forecasts that the average consumer in 2017 will spend an average of $1,226, or nearly $2,226 among households earning $100,000 or more.

It all adds up, especially if you’re out to outdo a neighbor: The tree and all the trimmings; hostess gifts for parties; food for your own holiday meals and entertaining; your Clark Griswold-style light shows. Randy Williams, president of A Debt Coach, a counseling service in Kentucky, says the desire for personal reward can contribute to holiday debt. 

“You feel good when you do something for somebody,” he says. 

But then consumers may have the motto “One for you, one for me,” and purchase an item for themselves, which continues the spending cycle. 

Hot holiday toy crazes

Unfurling your child’s Christmas wish list can be at once fun and terrifying. Parents planned to spend, on average, $495 per child, according to 2016 holiday shopping data from the Rubicon Project. 

Lists could include hot holiday toys for 2017 like the $30-$45 Fingerlings (the little plastic monkeys that attach to fingers and move in response to sounds and touch) a $300 Nintendo Switch gaming console or even the $799 Lego Ultimate Collectors Series Millennium Falcon, the company’s biggest set with 7,541 pieces. 

When the toys start to run out, the prices can escalate. The Fingerlings, for example, typically retail at $14.99, but some were listed in November for twice as much on eBay. Since it can be harder for parents to say “no” to the frenzy when it’s a gift that’s going to bring a smile to a little one’s face, Williams says there’s extra incentive to plan well. 

Store credit card pitches

McClary warns not to get into store credit card offers. The instant savings of 10 percent off on the day of your purchase could come with a high cost, such as 29.99 percent APR later. 

“People should resist the temptation,” he says.  

Williams says there’s a reason for the incentives, such as a discount on your purchase, because the company will make back whatever you initially saved. 

“Most people do not pay off their cards within the intro offer time,” he says. 

Instead, set aside cash for holiday spending and use it, instead of credit. If you’re sure you can “affordably borrow,” Williams suggests using an existing line of credit instead of falling for the attractive offers from retailers.  

“Special” offers

Deals seem to abound when shopping online or in stores, but if you aren’t careful, some can land you in more trouble than no deal at all. 

McClary advises to avoid promotions like deferred interest cards and convenience checks. Discounts during the holidays are usually found during other times of the year, too, when the budget is less tight.  

“It’s to the advantage of the consumer to be looking at sales during the year and look for opportunities to get the most out of their money,” he says. 

Trying to keep family traditions alive

Wanting to continue your grandparents’ or parents’ traditions may be sentimental but also pricey in today’s economy. Maybe they held extravagant dinner parties, paid for holiday trips and gave their children  a certain number of gifts every year. You want to follow suit, but can’t afford it. 

“(I’m a) firm believer that what gets us in trouble in the holidays is wanting to do what Mom and Dad did,” Williams says. “Things are more expensive now.” 

Shopping with family members post-Thanksgiving, on Black Friday, although a tradition, also may be a temptation because of impulse buys or if family members don’t hold you accountable to sticking to a budget. 

“It’s tradition but it’s also a day people can’t afford,” Williams says.  

Hosting hordes of holiday visitors

While milk and cookies are left out for Santa, entertaining guests, from neighbors and co-workers to out-of-town family and friends, can increase your food and utilities spending in December. 

According to a holiday retail survey by Deloitte, 24 percent of people plan to attend and/or host more parties and events during the holidays.  

“You spend money in all sorts of ways,” Dvorkin says. 

Indulgent spending

“Where the problem is, we don’t plan for Christmas, we just do Christmas,” says Williams. He says that means sometimes consumers plan, mentally, to go into debt.  

He advises to plan ahead for the next season, adding that he knows people who start checking items off their list in February during sales, or in June or July when fewer people are buying and prices are lower.  

The NRF predicts holiday sales, including gifts and food and beverage items, to reach nearly $682 billion, up from $655.8 billion in 2016. Without careful spending, a large amount of that could be a debt burden on consumers until the next season comes around.

“You don’t want this to be a compounding problem that continues to grow each year,” McClary says. 

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kat Khoury
Kat Khoury |

Kat Khoury is a writer at MagnifyMoney. You can email Kat here

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