As I paid bills that first month after my son had graduated, landed a job and left home, I had an uneasy feeling I had forgot to pay a bill…I had money left at the end of the month. It was almost like having a pay raise. It takes a lot of money to raise a family, and helping low-wage earners hang on to that much-needed income is exactly what the Earned Income Tax Credit (EITC) is all about.
EITC is one of the principal anti-poverty programs for working families in the federal budget. EITC is for working people with low and moderate incomes, including families with incomes up to $53,267. The credit ranges from minimal (as low as $2) to life-changing (up to $6,143). The amount a family receives is based on:
- If you are single or married
- If you have no children or the number of children you have
- The amount you earn.
To be eligible to claim this refundable credit, you must have worked and have earned income; have a Social Security number; be a U.S. citizen or resident alien all year; cannot file married filing separately; cannot be a qualifying child of another person and must have investment income less than $3350.
You have to file a federal tax return to get EITC even if you owe no tax or are not required to file. Free tax preparations volunteers work hard to ensure low to moderate income earners take advantage of the Earned Income Tax Credit. To find a free tax prep sites near you, visit www.irs.gov/Individuals/Free-Tax-Return-Preparation-for-You-by-Volunteers
The top six New Year Resolutions for 2015 included, in order:
- Lose weight
- Get organized
- Spend less, save more
- Enjoy life to the fullest
- Stay fit and healthy
- Learn something exciting
Did your 2016 list resemble any of these items? It is now the end of January. During a recent staff meeting, one of my co-workers asked, “How are your resolutions going?” According to London Business School, 25% of us have given up by the first week. Sixty percent of us will make the exact same resolution year after year. Are you one of them?
If you’re struggling with your goals, ask yourself why? Many times, people fail because they had set the bar too high to succeed. Keep in mind also that it takes at least 30 days to replace a bad habit with a good habit; in other words you need to give yourself time to learn new habits. Checking to be sure your goal is realistic, and then being patient and persistent in putting it into action, can improve your chance for success.
If you’re a parent, you already wear many hats. Adding a finance hat can help your children become more financially well-informed. How financially responsible is your family? Research has suggested that most kids absorb the family “money story.” You may wonder what that is: the family money story is what your children see at home.
If you’re like most households, where both parents work, your time to spend with your kids may be limited. That may mean that children are more exposed to media – TV commercials and other marketing – which may lead them to want items they would never otherwise consider. Fortunately, there are ways in which you can influence the “money story” that they learn.
A key way to help write your children’s money story is to get them involved in household financial activities. Some examples are:
- $ Grocery shopping – where you can share your beliefs about needs vs wants.
- $ An allowance – where they have the ability to practice making their own spending decisions.
- $ Being an entrepreneur – where they earn money, whether by selling lemonade, baking cookies, or walking dogs.
- $ Visiting the bank – where they can learn how to open and use a bank account. You can also use it as an opportunity to explain how debt and credit cards work.
Teaching children how to balance between savings, spending, investing, and giving is an important part of parenting. By putting on a financial hat, parents can use real life experiences to help children learn a money story that will serve them well throughout their life.
My daughter-in-law is a busy woman. She has a full time job, a beautiful 3-year old daughter who needs lots of attention, and she puts a significant amount of time and energy into gigs (short-term jobs) which she hopes will grow into a full-time business.
A study by Intuit predicts that by 2020, 40% of American workers will be independent contractors. The trend toward a gig economy has begun. A gig economy is an environment in which temporary positions are common and organizations contract with independent workers for short-term engagements.
Over the past few years, I have seen an increase in the number of individuals earning a majority of their income from self-employment; this requires a Schedule C when filing taxes. The biggest mistake made by these individuals is the failure to plan for taxes.
Self-employed individuals generally must pay self-employment tax as well as income tax. Self-employment tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. For 2015, the self-employment tax rate is 15.3% (12.4% for social security and 2.9% for Medicare.) Owing this tax on top of income tax can be a shock, and it can be made worse by penalties if you have failed to make quarterly payments.
It can be hard to learn all you need to know about being self-employed. Working with an accountant may be an added cost you don’t think you can afford, but you may find you can’t afford to NOT have their expert advice.
I’ve never bought a new car; instead I’ve usually tried to buy low-mileage used cars. My reasoning has been that the price of a recent used car tends to be notably lower than the comparable new car, even though its value (in terms of how much use I’ll get from the car) is nearly equivalent to a new car.
My daughter bought a new car late last summer. She wondered if buying a new car was the right thing to do, since she has observed my patterns over the years. But she had good reasons to buy new – selection was better, as was the warranty. It was near the end of the model year, so the new car price was not much above a recent used car, and the financing terms on the new car were more advantageous. I supported her decision – she had thought it through well – and she certainly hasn’t regretted the decision. In fact, I’ve been just a little bit envious!
As she was recently preparing to move, recognizing the fact that she’d need to register her car in the new state, she said “I hope the vehicle registration isn’t as much.” I was surprised, and she showed me her registration paperwork. It turns out there’s a “new vehicle registration fee” that’s pretty sizable (it was nearly $1,000 even for a compact car). That was a big surprise to me! Since I’ve never bought a new car, I had no idea.
It just goes to show two things:
- Unexpected costs arise, so it’s good to be prepared; what’s more, it’s smart to minimize surprise by asking in advance “are there any additional costs associated with this?”
- There’s always something new to learn!
At my house it’s time to round up all the necessary records for a February tax appointment. It involves records for a farming operation, so the return has an earlier deadline, February 29th, for filing. The early filing deadline means some forms I need for the appointment may not arrive before we sit down with the CPA to prepare the return.
The 1095 form is one I expect to be delayed. The form verifies that you have had health insurance for the year. Note: if you were uninsured, you might have to make a shared responsibility payment. There are three versions: form 1095-B comes from the insurance company if you had a private plan, 1095-C is issued by your employer if you were enrolled in group coverage, and 1095-A is issued by the Marketplace.
Some employers (1095-C) and insurance companies (1095-B) are having trouble getting the forms issued by the end of January, so the IRS has granted them an extension. The new deadline will be March 31, 2016, which is well past my February 29th deadline.
The 1095-A issued by the Marketplace is different. It was issued last year, and has had some of the challenges worked out, so it should arrive by the end of January. If you have Marketplace coverage, you will need it to file a return. Form 1095-A includes information about Premium Tax Credits, so don’t schedule a tax appointment without it.
What will I do this year? Last year my CPA frowned when I didn’t have an insurance card for proof of coverage, so I pointed out that the W-2’s indicated withholding for Medical coverage for both myself and my husband. (code DD, box 12). The IRS allowed that kind of verification last year, stating that you didn’t need actual proof of coverage if there wasn’t a reason to suspect otherwise. It’s a year later however, and I expect the smart thing will be to take our insurance cards to the appointment to provide proof .
During a recent visit with a lawyer who specializes in elder law, I saw the check list he used when advising people on estate planning. First on his list was PROTECT ASSETS. My question was, “Who are assets being protected from?” His response was, “Nursing homes.” In a nutshell, his goal was to legally shelter assets so the aged are put on Medicaid…transferring the costs of living in a nursing home, to the state.
It costs money (a lot of money) to care for someone in a nursing home. The government reimburses nursing homes only a fraction of the cost to care for someone living in the home on Medicaid. Nursing homes are a business; like all businesses, if they do not cover their costs, they will not be in business for very long.
SO: if all the costs to care for a loved one are not covered by the state, how can the nursing home keep their doors open? They can cut back on their expenses (hire fewer people, which means providing fewer services), or increase their income in the fees they charge non-Medicaid clients. The more Medicaid clients a nursing home has, the greater the cost that is transferred to the non-Medicaid clients.
My family is lucky… our dad has assets, which means my brother and I have access to more choices in how and where dad is cared for. We have always hoped that dad would spend his last penny on his last breath; by that we mean that HIS money will be spent for HIS comfort and needs rather than leaving an inheritance to us kids. We found a Memory Care Unit that does not accept Medicaid. Yes, it is very expensive, but reasonably so…the number of activities and services provided are amazing! He will get what he pays for and deserves.
One simple step to make sure your health care plan is compatible with your health care providers (including clinics, hospitals, pharmacies, mental health services, dentists, and others) is to CALL AND ASK! This seems to be wise advice for everyone, whether they are selecting coverage from their employer, enrolled in public insurance (such as Medicaid/Medicare), or buying health insurance individually; the challenge seems to be universal.
ISU Extension’s workshop called Smart Choice: Health Insurance devotes some time to defining the different types of networks found in different insurance plans. (For full info, check out “Types of Health Insurance Plans,” one of our Smart Choice handouts). In brief, there are three most common types:
- the closed network of the HMO/EPO,
- the referral-required POS model, and
- for coverage when you go to a clinic out of state or want the option to see a specialist without referral there is the PPO plan.
News Flash: ANY insurance plan can have limitations that will put you in a position of not having coverage. The changes can result from institutional events (such as privatization of Iowa’s Medicaid and Expanded Medicaid programs) or private contract negotiations between health providers and the insurance industry. Changes are common, so don’t assume what worked last year is true for the next 12 months. The “Call and Ask” rule is a good rule to apply every single year.
In our workshop, we also ask participants to rank 5 items in order of importance to them in choosing a health insurance plan. The five items are:
- Health care services needed for the next year
- Doctors and health care providers in the insurance network
- Monthly premiums
- Deductibles, co-pays, and coinsurance
- Prescription drugs covered by the plan
Right now given the changes taking place in health insurance coverage, I’d put networks (2nd bullet) at the top of my list.
Are you planning to shape up your finances in 2016? Perhaps you want to be more ready for retirement, or build an emergency fund, or reduce debt. Or perhaps you just want to be in control of your paycheck so that you don’t have to scramble to pay bills and buy groceries.
Whatever your financial goals, Iowa State University Extension and Outreach offers free, non-commercial, research-based tools that can help you move forward. Some of our most popular 24/7 resources include:
Learning can be the first step to action – click on one of the links above to get started!
I was recently asked by my supervisor for performance goals (key actions I plan to work on); these are due by the end of the year. We do this so we keep moving forward, rather than standing still or sliding backwards in our skills and our work.
As we turn the New Year calendar, it may also be time for us all to consider setting goals for our personal lives. As the ball drops in Time Square in New York City soon, many of us make resolutions or set some goals for our lives in the next year.
As I consider my personal goals for the coming year I approach it from several directions:
- Things I want to do – “bucket list” items. I am sure travel will continue to be on my list.
- Major projects that need to be done around my home: some updating of the electrical system needs to be on my list.
- Smaller projects – I want to cull through my closet and pull out clothes I haven’t worn for a while; I can give these items to Goodwill for others to use.
Last year, I replaced a car. I visited the Grand Canyon and saw parts of Arizona I had not seen before – Sedona, Flagstaff, Jerome and Williams (where I felt like I was in the Cars movie!). It feels good to look back and see what I accomplished in the past year. I now want to set some clear goals for the coming year, so I can keep moving forward.
What’s on your goal list for 2016?