Thursday, May 8, 2008

Stimulus Payment Delays

This post is in addition to the post I wrote yesterday. In that post (click here), I addressed some of the events that could reduce the amount of a stimulus payment that you receive. I wrote that an audit should not affect the amount of your economic stimulus payment. That is still correct but I want to add some addtional thoughts.

If you are currently undergoing an audit for years prior to 2007, that audit should not affect the stimulus payment. Conceptually, however, if your 2007 return has been selected for review prior to its official processing, your stimulus payment could conceivably be held up because the IRS will not have determined what your stimulus payment should be.

Lets say for example, that the social security numbers of your dependents doesn't match what the IRS has on file. Maybe you wrote it wrong, maybe they read it wrong, it doesn't matter, just assume the numbers don't match. If that is the case, the IRS cannot complete the processing of your return. If they can't complete the processing of your return, they can't make a determination on how much your stimulus payment will be. As such, your stimulus payment could be delayed until they have it sorted.

There are a great number of items on a return that the IRS may want to confirm during the processing of your return. This could mean a delay in the stimulus payment if what they are looking into relates to your 2007 return.

Unfortunately, there is no telling how long the delay will be. It is a question of how long it takes for them to resolve the issue. In the meantime, if you receive a letter from the IRS asking for information, don't ignore it. If they are asking questions that you can answer yourself, do so. If they are asking questions that are more complicated than you are comfortable with, consult a legal advisor.

Wednesday, May 7, 2008

What Affects the Amount of an Economic Stimulus Payments?

This month the Economic Stimulus payments are being mailed or electronically deposited in your account. This post addresses some of the common questions that people have about what can affect their stimulus payment and why it could be reduced.

Generally, if people had $3,000 or more in earned income in 2007, they qualified for the stimulus payment. If you made over $75,000 (for an individual) or $150,000 (for married filing jointly) the amount you receive can be reduced gradually until it is completely eliminated.

So assuming that you qualified, you are now asking "What can affect whether I receive the economic stimulus payment?"

PAST DUE TAXES: If you owe past due taxes, the stimulus payment that you should receive will be reduced by the amount of the tax you owe. If you owe more than the stimulus payment that you are entitled to, the IRS will apply all of the payment to that debt. That is, you may not receive any cash in hand. Your tax debt, however, will be reduced.

OTHER UNPAID DEBTS: If you have unpaid student loans or past due child support obligations, the IRS may apply your stimulus payment to reduce the amount of those debts. If the amount you owe for these debts is larger than the stimulus payment you would receive, you will not recieve the stimulus payment.

If the IRS applies the stimulus payment against past due taxes, student loans or child support, you can expect that the IRS will send you a notice explaining what they have done a couple of weeks after they have done so.

AUDIT: The IRS should only capture your stimulus payment if it is already established that you owe the IRS additional past due taxes. When you are undergoing an audit, the IRS is investigating whether you owe additional tax. No determination as to additional tax owed is made until after an audit is complete (and if the audit is appealed, not until the appeal or related actions are complete). Essentially, the IRS should not intercept your stimulus payment just because you are going through an audit. That is, if you are being audited, you should still receive your stimulus payment.

INCARCERATION: Whether a person is incarcerated and sitting in jail or prison should not affect their stimulus payment. This, of course, depends on whether they were eligible for the stimulus payment in the first place. Recall that in most instances a person had to have earned income (of $3,000 or more) in 2007 to be eligible. If someone was in prison for all of 2007, it is unlikely that they would have initially qualified to receive the stimulus payment. But if an incarcerated person did qualify for an economic stimulus payment, they should receive it either by direct deposit or at their last known address.

Ultimately, the only things that should really affect your receipt of a stimulus payment are (1) whether you qualified in the first place and (2) whether you owe money to the government or certain other past due debts (for example, child support).

Tuesday, May 6, 2008

Employee vs. Independent Contractor Podcast

One of the hot issues that the IRS is looking into these days is the "worker classification" issue. That is, the IRS wants to know whether businesses are properly classifying workers as employees or independent contractors.

The consequences of classifying a worker as one or the other relate principally to whether the business has to withhold income tax, social security tax and medicare tax from a worker's wages. A business must do so if the worker is an employee. Further, if a worker is an employee, half of the social security and medicare tax liability falls on the business' pocket book.

If the worker is an independent contractor, all of the responsibility for paying income tax and social security/medicare tax (that is, self employment tax) falls on the worker. Usually this means the independent contractor must save enough money to pay the taxes due and make quarterly estimated tax payments.

I have recorded a podcast that discusses these and other issues that arise in the employee vs. independent contractor setting. I encourage you to listen to it. If you have follow up questions, certainly let me know. (

The Employee vs. Independent Contractor podcast can be found by clicking here.