2020 - unique tax implications

[mistysue]

Hey- I often look here when I want to find people who just know random money related tidbits so I thought I would ask this.

Usually federal tax is fairly straight forward as far as you make more, you keep more- things phase out over large amounts, tax rates graduate rather that being a flat rate over your entire income, etc.

With the multiple stimuluses, unemployment that isn't taxable, various credits and stimulus that phase over smaller amounts, it is the first time I've seen that you can REALLY be ahead by making less. (usually it's more like "if I overanalyze, if I made $30K less I would only be down by 2/3 of it" this year you could be AHEAD by making less)
Anyone else know another time since the US had federal tax that this has been an issue? Is this a thing in other countries?

A great example, a single parent with 4 kids making $80K in 2020 would have 80K minus taxes. (lets ignore standard deduction to make this less of a headache) A single parent with 4 kids making 75K would have (75K-taxes plus $5,600) - they are ahead by the $5,600 plus the amount of the taxes on it. Plus they get a higher amount of various credits and the other stimulus payments, pay less for insurance, etc... it sort of snowballs. Plus if the lower income parent had collected 10K in umemployment on top of that- you're looking at someone making an extra 5K through their employer and being around 12K BEHIND (10.6K + taxes) the "lower income earner" at the end of the day. It snowballs even more if you're looking at older kids with FAFSA or young kids with childcare deductions (if those are still a thing?)

I know I'm overthinking, that's what I do.

 

[tvguy]

Two stimulus checks
Unemployment benefits (just one week)
$1,000 pandemic bonus for me
$1,000 pandemic bonus for my wife.
No clue what my tax situation will be, paper work is to the accountant so I should know soon, but our total income looks like it is up about 10% because of the pandemic, but most is not taxible.

 

[Disneybuckeye]

We did not receive a cent of stimulus money and only one of our 3 children did. They are all late twenties and early thirties.

I would not encourage anyone to make less money to receive benefits that most likely will not be around much longer.

Keep in mind SS is based on salary. Annual increases are usually a percentage of what you currently make. I would much rather be where we are then eligible to receive government handouts that are going to put a huge burden on future generations.

Just my opinion.

 

[barkley]

We did not receive a cent of stimulus money and only one of our 3 children did. They are all late twenties and early thirties.

I would not encourage anyone to make less money to receive benefits that most likely will not be around much longer.

Keep in mind SS is based on salary. Annual increases are usually a percentage of what you currently make. I would much rather be where we are then eligible to receive government handouts that are going to put a huge burden on future generations.

Just my opinion.

i'm also seeing so much about massive unemployment yet i know of several employers who offer above our state's minimum wage (here it's just shy of $15 an hour) w/full benefits (at almost no cost to employees) that can't fill positions b/c people have run the numbers and figure they are ahead by virtue of unemployment and the extra funds it is providing. i don't think they take into consideration that their unemployment eligibility will run out at some point and if they become re-employed and then something comes up w/that job to leave them unemployed-they likely won't have the quarters to qualify.

the whole mindset seems very short sighted to me.

 

[mistysue]

We did not receive a cent of stimulus money and only one of our 3 children did. They are all late twenties and early thirties.

I would not encourage anyone to make less money to receive benefits that most likely will not be around much longer.

That wasn't my point at all- especially because I don't expect this to be normal. I just find it really interesting.
I did do some calculations and if I had taken 6 months off last year, by the time various credits were taken in to account it would have been on par with in a normal year only taking off a few weeks. Of course it was a bit of a "what the heck?" moment, but there's nothing that can be done... oops I was accidentally a productive member of society instead, which is good.
The small phase out for the last stimulus does strike me as mean to people who are at/just about that window. I think there will be many families who miss it by less money than they would have gotten.

i'm also seeing so much about massive unemployment yet i know of several employers who offer above our state's minimum wage (here it's just shy of $15 an hour) w/full benefits (at almost no cost to employees) that can't fill positions b/c people have run the numbers and figure they are ahead by virtue of unemployment and the extra funds it is providing. i don't think they take into consideration that their unemployment eligibility will run out at some point and if they become re-employed and then something comes up w/that job to leave them unemployed-they likely won't have the quarters to qualify.

the whole mindset seems very short sighted to me.

This was HUGE problem for the construction industry around here last year. People were refusing to come to work because they made almost as much sitting at home. Of course then they ran out of unemployment just in time for the busy season to be over, but it was by choice. Also, we're discussing many jobs that are naturally socially distanced, so no these people weren't afraid to go back and many said as much.

 

[MomToOne]

A great example, a single parent with 4 kids making $80K in 2020 would have 80K minus taxes. (lets ignore standard deduction to make this less of a headache) A single parent with 4 kids making 75K would have (75K-taxes plus $5,600) - they are ahead by the $5,600 plus the amount of the taxes on it. Plus they get a higher amount of various credits and the other stimulus payments, pay less for insurance, etc... it sort of snowballs. Plus if the lower income parent had collected 10K in umemployment on top of that- you're looking at someone making an extra 5K through their employer and being around 12K BEHIND (10.6K + taxes) the "lower income earner" at the end of the day. It snowballs even more if you're looking at older kids with FAFSA or young kids with childcare deductions (if those are still a thing?)

I know I'm overthinking, that's what I do.

A single parent with 4 kids would be able to make $112,500 as Head of Household (it would be extreme for them to be filing Single - that's usually a couple filing separately for some reason in this sort of scenario) and still get a full stimulus check, and it doesn't phase out fully until $120,000. Many things like childcare deductions also have similar higher income limits for HOHs.

So the person in your example would be in a better financial situation to start with for it to be "better" to be unemployed/make less. That's just the nature of these things - it was "worse" for me that DD was older the first two stimuluses. It didn't keep me up at night. It was "worse" for me at some point to have a higher income and lose the college tax break for DD- still didn't fuss over it. Just did what I could to bring down my AGI to try and qualify for things. Outside of the current Covid situation, why does a couple with a stay at home parent, and one working parent, get to bring home more money before they lose the college tax credit for a child than I can as a single working parent? Last I checked, that kid cost the same amount to put through school whether she had 2 parents or 1 - but it is what it is. These things have existed in our tax code for quite a while. But at that income level, I know I'm in much better shape than many, and am grateful for it.

Unemployment also brings with it the need to pay for your medical insurance, while you are probably getting employer subsidized insurance at that income level. You might get a break from the state exchanges, depending on the timing of things and impact to your annual income, but the coverage is generally not as good either. The stress from not having a job, and potentially looking forward to ONLY unemployment income in the next calendar year is also it's own hell (been there, done that). The difference between the two situations in your example is quickly negated by the difference in income in the first few months of the next year.

I'd take the job and no stimulus/tax credits any day.

 

[mistysue]

I'd take the job and no stimulus/tax credits any day.

Of course.
My only point is that it's fascinating how quickly things become uneven this year because of all of the stimulus packages and the changes in the last few years to taxes and deductions. That was all.

I don't think it's normal that making a little less puts people so dramatically ahead, but I don't think it should happen. (My comparison with two single parents could just as easily have been made with two head of household parents)

I'm bothered by things like that unfairness in college costs, even when they don't effect me. I don't think it's right and I wish we had better systems because how thinks work is crazy. I remember listening to a conversation a few years ago with someone thinking of quitting their career to save money on their kids college, meanwhile people who started at lower incomes and have a few good years before college starts have to pay everything. That shouldn't be a thing. If income matters in any of these sort of things it should be more long term anyway, I think we've entered into a point in the system where creating things that are free up to x amount causes a very serious hardship for people who are near the cutoff.