How to lower your income below the $ 150,000 limit

Millions of Americans will get tax exemption on their unemployment benefits this tax season.

However, certain income rules limit who can qualify.

Fortunately, there are some tax maneuvers that include individual retirement accounts, health savings bills and write-offs for business equipment, which can help workers alleviate these restrictions.

“There’s a bit of a ray of hope for you,” says Leon LaBrecque, a financial planner and accountant for Akron, Sequoia Financial Group, in Ohio.

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The U.S. bailout plan, signed by President Joe Biden last Thursday, waives federal taxes on up to $ 10,200 of unemployment benefits per person received in 2020.

This limits the benefit to taxpayers who earned less than $ 150,000 last year. This ceiling is the same regardless of the filing status, such as single or married.

Income wreath

On March 11, President Joe Biden signed the $ 1.9 billion U.S. bailout plan of 2021 in the Oval Office.

Doug Mills-Pool / Getty Images

The restriction serves as a wreath. Taxpayers who earn $ 149,999 are eligible, while those who earn $ 150,001 – just $ 2 more – are disqualified.

For Steven Taub, the wreath can be expensive.

Taub, 63, and his wife had a combined adjusted gross income of $ 152,483 last year, according to a TurboTax projection.

If it were not for the U.S. bailout plan, the couple, who recently moved from the Seattle area to Pinehurst, NC, would be taxed on $ 20,400 unemployment benefits from the state of Washington – according to the maximum for a couple, according to tax records checked by OilGasJobz.

That extra $ 2,483 income could cost them thousands of dollars in tax benefits.

“Unlike a lot of the changes, where it’s graduated, it’s a cutoff point,” Taub said. “It’s really struggling.”

The approach to the wreath differs from some other elements of the $ 1.9 billion Covid lighting company, Taub noted. The size of the $ 1400 stimulus, for example, is about, phase out to certain income limits.

Taub and his wife, an accountant, both now re-employed, work with an accountant and wait to file their taxes for the time being.

IRA and HSA contributions

Taxpayers will have to do a calculation to determine their MAGI in 2020. (The formula is based on a Worksheet for the exclusion of unemployment benefits posted by the IRS.)

Unfortunately, according to accountants, MAGI is a difficult thing to reduce retroactively.

“You’re really limited,” said Henry Grzes, general manager of tax practice and ethics for the American Institute of Certified Public Accountants.

Retrospective contributions to an HSA or traditional IRA are two possible routes. The contributions have a tax deduction that would reduce the adjusted gross income for 2020.

Deduction limits

But there are reservations.

First, the accounts have annual contribution limits.

In 2020, taxpayers kon red up to $ 6,000 in an IRA. (The limit is $ 7,000 for ages 50 or older.)

Individuals with sole coverage in a high-deductible health plan kon red up to $ 3,550 in an HSA by 2020. Families can save double, or $ 7,100. Those 55 or older get $ 1,000 extra.

In total, one taxpayer over the age of 55 can reduce their income by a maximum of $ 11,550 by using these accounts; it would cost $ 22,100 for an older couple filing a joint return.

And it assumes that account holders made no previous contributions to their IRA or HSA, which is unlikely, said Jeffrey Levine, a financial planner and accountant at Buckingham Wealth Partners.

They must also have the cash on hand to make these contributions.

Here’s a certain calculation as well – to save more money to get tax savings.

It may be worth it. A married couple with $ 151,000 in joint income would probably be in the 22% federal income tax, Levine said.

In this example, investing just over $ 1,000 in an IRA would yield about $ 4,500 in tax savings (if a tax cut is accepted on their maximum $ 20,400 unemployment benefits).


However, there are other limiting factors.

Contributions to a traditional IRA are only fully deductible if not saving a taxpayer or their spouse in a retirement plan at a workplace like a 401 (k).

Taxpayers may receive only partial deductions, or no deductions, for IRA contributions if they or a spouse saved in a workplace retirement plan and their income exceeds a certain limit.

(For example, in 2020, a taxpayer whose spouse saved in a 401[k] only get a full IRA deduction if joint income is less than $ 196,000. However, the income limit is lower – $ 104 000 – if the same taxpayer saved in a 401[k].)

There is some wrinkles also for HSA savers, which can limit deductions. Contributions to various HSAs, for example, cannot exceed the overall limit.

Business Owners

Grzes said self-employed people who received benefits without a job could reduce their net business income retroactively.

This is especially true for entrepreneurs who bought an expensive piece of equipment in 2020.

Instead of depreciating the asset over several years and taking an income deduction in each of those years, the tax law allows them to exercise the full amount in the first year, Grzes said.

For example, instead of spreading a $ 5,000 tax deduction over five years (a $ 1,000 tax deduction for each year), business owners can take the full $ 5,000 for 2020 instead.

That savings will flow through to their individual tax return.

CNarmen’s Carmen Reinicke reported.

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