Tax Credits Are Often More Valuable Than Deductions

If you are confused about the difference between a tax deduction and a tax credit, you are not alone. A deduction is subtracted from your income, lowering your taxable income and your income tax. But a tax credit kicks in after you have computed your income tax, reducing that income tax dollar-for-dollar.

You must choose between taking a standard deduction or itemizing your deductions. Since the standard deduction is now $12,400 per taxpayer, even more for seniors over 65, it won’t benefit most people to itemize unless they have a hefty home mortgage or huge medical expenses.

But even if you take the standard deduction, there still are a few deductions you can claim and many credits for which you might qualify. Here are some of the more popular ones.

Student loan interest deduction. You can deduct up to $2,500 of student loan interest if your income is less than $85,000 on a single return (double that if filing jointly.)

Educator expenses deduction. School teachers can deduct up to $250 they spend on classroom supplies.

HSA contributions deduction. For 2020, if you have high-deductible health coverage, you can contribute up to $3,550 to a Health Savings Account to pay for medical expenses ($7,100 for family coverage).

Retirement plan contributions. You may have a traditional 401(k) or other retirement account available to you at work, and all your contributions to the plan are tax-deductible up to $19,500 ($26,000 if you are 50 or older). Contributions to traditional IRAs or other individual retirement accounts are also deductible. You may also qualify for a Saver’s Credit of up to 50% of your first $2,000 in retirement plan contributions if your income is under $32,000.

Education tax credits. If you are paying for college for yourself or your kids, the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit LLC) may help. The AOTC credit is 100% of the first $2,000 you spend on education and 25% of the next $2,000. The LLC lets you claim 20% of the first $10,000 you paid toward tuition and fees. The AOTC cuts off at $90,000 of income at the LLC at $69,000.

Child credits. You’ll get a Child Tax Credit of $2,000 per child ($500 for non-child dependents) if your income is under $200,000 ($400,000 on a joint return.) For child and dependent care costs, you’ll get a credit of 20% to 35% of the first $3,000 of care costs, or double that if there are two or more dependents. If you adopt a child, you can claim credit for up to $14,300 of adoption costs per child if your income is under $254,520. And if your income is under $57,000, you may also qualify for an Earned Income Tax Credit of up to $6,660 depending on your marital status and how many kids you have.

Residential energy credit. If you installed solar equipment this year, you may qualify for a tax credit of 26% of the cost. In 2021, the final year, the credit is reduced to 22%.

When it’s time to file your taxes, TurboTax® is here to help!

From simple to complex taxes, TurboTax has you covered. And when you need help, real experts are standing by — and can even do your taxes for you, start to finish with TurboTax Live®. Getting your biggest possible tax refund has never been easier. And as a credit union member you can save up to $15 on TurboTaxClick here to get started today!

The information in this article for general educational purposes only and not intended to provide specific advice or recommendations.Please discuss your particular circumstances with an appropriate professional before taking action.

With hundreds of millions of dollars in assets and over 60,000 members across Hawaii, Hawaiian Financial FCU is one of the leading financial institutions in the state, with a reputation for combining personalized service with technologically advanced personal banking solutions. Learn more about our broad array of services, follow us on Facebook, Twitter, and Instagram for news and updates, or call (808) 832-3700 on Oahu or toll-free at (800) 272-5255 with any questions.

I Was Temporarily Furloughed and Then Came Back to Work, What Does That Mean for My Taxes?

Whether you are furloughed, laid off or fired, it hurts. It’s a blow to your ego, and losing a regular paycheck is a blow to your finances. Fortunately, for many it was temporary, and after the initial weeks and months of the pandemic they were able to go back to work.

If you were furloughed and your paycheck continued during your furlough (lucky you!) then your finances and taxes didn’t change much. But if you had a gap in pay, with a corresponding gap in taxes withheld, what does that mean for your overall tax picture for 2020? 

If you received unemployment benefits during the period you weren’t working, those benefits are taxable, but income taxes weren’t withheld unless you made a special request. As a result, the taxes on those benefits are due when you file your tax return in the spring or will reduce the amount of your tax refund.

Speaking of refunds, the amount of your refund depends on how much was taken out of your paycheck for income taxes compared to the actual taxes on your tax return. If you had more taken out than the actual taxes, you are due a refund of the difference. But during the weeks or months you weren’t receiving a paycheck, nothing was taken out. That will result in a lower refund at 2020 year end.

There is one ray of sunshine in all of this. Our system of income taxes is graduated, with higher rates applying to higher income. If your income dropped for 2020, your tax bracket may have dropped as well, and that could increase your refund a bit. And now that your income is lower, that could make you eligible for tax credits that didn’t apply to you before, such as the Earned Income Tax Credit.  When it’s time to file your taxes TurboTax is here to help! 


From simple to complex taxes, TurboTax® has you covered. And when you need help, real experts are standing by — and can even do your taxes for you, start to finish with TurboTax Live®. Getting your biggest possible tax refund has never been easier. And as a credit union member you can save up to $15 on TurboTaxClick here to get started today!

The information in this article for general educational purposes only and not intended to provide specific advice or recommendations.Please discuss your particular circumstances with an appropriate professional before taking action.

With hundreds of millions of dollars in assets and over 60,000 members across Hawaii, Hawaiian Financial FCU is one of the leading financial institutions in the state, with a reputation for combining personalized service with technologically advanced personal banking solutions. Learn more about our broad array of services, follow us on Facebook, Twitter, and Instagram for news and updates, or call (808) 832-3700 on Oahu or toll-free at (800) 272-5255 with any questions.

How to Address Post-Holiday Debt

The holidays are a time to celebrate your loved ones, but if you went overboard on the presents, you may be wondering how to get your finances in order. Whether you turned a blind eye to your online banking account while shopping or racked up a little too much on your credit cards, take these steps in the new year to get your spending back on track.

1. Know Where You Stand

The first way to address your post-holiday debt is by utilizing your online banking system to evaluate your spending over the last few months. If you had to move some funds from your savings into your checking to cover gifts, determine how much money you’ll need to build this account back up again. Once you have a set number, divide it into three or four payments over the next few months to restore your savings.

2. Create a Budget

If you relied on credit cards to fund your holiday spending, you may be looking for the fastest way to pay these accounts off. Setting a budget allows you to take a comprehensive look at where you’re currently spending money and how you can better allot these purchases.

You can create a weekly or monthly budget using some simple steps. First, gather all financial information, including pay stubs, retirement benefits, and monthly bills. Break down your yearly income by month, paying attention to the number you bring home after taxes. Estimate your weekly spending on groceries, activities, and necessities, like utility bills and gas.

Then tally in any additional debts. After you pay off the maximum amount of these monthly payments, take at least 75% of what is left and apply it to your savings or additional credit payments. 

3. Opt for Cash

Research shows using credit cards makes you more likely to overspend when making purchases because of the ease of using plastic, the expedited exchange, and that you don’t see the money leave your hand. Combat this effect by withdrawing cash from your online banking account to cover the weekly budget you created, and limit yourself to this amount to prevent overdrafts.

With hundreds of millions of dollars in assets and over 60,000 members across Hawaii, Hawaiian Financial Federal Credit Union is one of the leading financial institutions in the state, with a reputation for combining personalized service with technologically advanced personal banking solutions. Learn more about our broad array of services online, follow us on FacebookTwitter, and Instagram for news and updates, or call (808) 832-8700 on Oahu or toll-free at (800) 272-5255 with any questions.

What is the Social Security Withholding Tax Deferral and What Does It Mean to Me?

Most employers are required to withhold 6.2% in Social Security tax from their employees’ pay and submit it plus a matching amount to the government. But in August President Trump signed an executive order allowing employers to temporarily suspend withholding the Social Security for September through December 2020. The suspension only applies to employees whose bi-weekly pay is under $4,000.

The suspension wasn’t a payroll tax reduction, it was a deferral. Any employer who opted to implement the suspension had to collect the suspended tax from their employees in January through April of 2021 and remit the deferred taxes to the government by April 30, 2021.

Many employers decided not to implement the tax suspension amid concerns over collecting deferred taxes from employees who might no longer be on the payroll in 2021 and other logistical issues. But if your employer did opt to suspend collecting Social Security withholding taxes, here are some things you should know.

  • The suspended tax will be withheld from your paycheck evenly from the beginning of the year through the end of April. That withholding is in addition to the normal Social Security tax withholding from your paycheck. So not only will the 6.2% withholding begin again on your current wages, a similar amount will be withheld for the suspended taxes. That could mean a cut in your net pay of 12.4% or so. Ouch!
  • Consider setting funds away in savings now that you can use into after the first of the year to make up for that dip in your net paycheck. 
  • If you leave your job before next April, be prepared to see all the deferred payroll taxes deducted from your final paycheck.
  • If you get a bonus that increases your bi-weekly gross pay to over $4,000, that paycheck will not be eligible for the payroll tax deferral and your employer will take Social Security taxes out of the wages and bonus in that particular paycheck.

When it’s time to file your taxes TurboTax is here to help! 
From simple to complex taxes, TurboTax® has you covered. And when you need help, real experts are standing by — and can even do your taxes for you, start to finish with TurboTax Live®. Getting your biggest possible tax refund has never been easier. And as a credit union member you can save up to $15 on TurboTaxClick here to get started today!

The information in this article for general educational purposes only and not intended to provide specific advice or recommendations.Please discuss your particular circumstances with an appropriate professional before taking action.

With hundreds of millions of dollars in assets and over 60,000 members across Hawaii, Hawaiian Financial FCU is one of the leading financial institutions in the state, with a reputation for combining personalized service with technologically advanced personal banking solutions. Learn more about our broad array of services, follow us on Facebook, Twitter, and Instagram for news and updates, or call (808) 832-3700 on Oahu or toll-free at (800) 272-5255 with any questions.

COVID-Related Distributions from 401(k) Plans – How will it impact my taxes?

The coronavirus certainly threw a monkey wrench in our finances this year, didn’t it? But there is some relief, if you or a household member lost their job, were furloughed, or had their work hours cut. A special provision of the Coronavirus Aid, Relief and Economic Security (CARES) Act lets you take up to $100,000 from your 401(k) or other retirement account before the end of 2020 without penalty. Here is the fine print for who qualifies, and from which accounts you can draw the money:

  • You, your spouse, or your dependent is tested and diagnosed with COVID-19.
  • You, your spouse, or a household member suffers financial hardship as a result of being quarantined, losing your job, having your hours or pay reduced, or having a job offer rescinded or delayed. And being unable to work because of lack of childcare counts as well.
  • You, your spouse, or household member closes their business or reduces business hours due to COVID-19.
  • Almost all retirement plans qualify for this temporary relief from penalties on early withdrawals, including all IRAs (traditional, Roth, SEP, SIMPLE, and SARSEP IRAs), 401(k) and 403(b) plans, pension and profit-sharing plans, governmental 457(b) plans, federal Thrift Savings Plans and 403(a) plans.

If you had a retirement stash you could draw from, this provision may have been a lifesaver for you. But now that tax time is around the corner, it’s time to start thinking about the tax consequences of those withdrawals.

Wait, I thought the withdrawals were tax-free!  Not quite. You don’t owe the 10% penalty for early withdrawal, but that doesn’t mean the distribution came to you scot-free. If your contributions to the retirement account were tax-deductible (what’s known as “before tax dollars”), then withdrawing the funds may have triggered tax.

But here’s the good news: it’s up to you as to how much is taxable and when that tax is due. Under the CARES Act the income from withdrawals is spread over a three-year period. So, if you received a $9,000 distribution, you would report $3,000 in income on your federal income tax return for each of 2020, 2021, and 2022. But if your income is super-low this year, you can elect to have it all taxed in 2020 at this year’s lower tax rates. Want to escape current taxation altogether? Repay the distribution within three years and you won’t owe income tax on the portion repaid.

When it’s time to file your taxes, TurboTax® is here to help! 

From simple to complex taxes, TurboTax has you covered. And when you need help, real experts are standing by — and can even do your taxes for you, start to finish with TurboTax Live®. Getting your biggest possible tax refund has never been easier. And as a credit union member you can save up to $15 on TurboTaxClick here to get started today!

With hundreds of millions of dollars in assets and over 60,000 members across Hawaii, Hawaiian Financial FCU is one of the leading financial institutions in the state, with a reputation for combining personalized service with technologically advanced personal banking solutions. Learn more about our broad array of services, follow us on Facebook, Twitter, and Instagram for news and updates, or call (808) 832-3700 on Oahu or toll-free at (800) 272-5255 with any questions.

A Beginner’s Guide to Emergency Funds

Whether you’ve just landed your first full-time job or you’re starting to pay off debts, starting an emergency fund is an important step to take as you gain financial independence. It can help you navigate life’s uncertainties with greater confidence. Here is a guide to help build up your savings and create your emergency plan.

Why Should You Have One?

If you become unemployed, this financial security net can prevent you from going into debt while you look for a new job. It can help you by paying for the basics, including food and utilities.

There are also other circumstances to consider for an emergency plan. For example, you might incur medical bills that aren’t covered by insurance or have to put out money for car repairs or a new vehicle if yours stops working. Vet bills and major home issues, such as problems with plumbing or appliances, are also reasons to dip into the emergency fund.

How Can You Build Up Your Fund?

To start an emergency fund, set aside a portion of each paycheck. You can have some of your check directly deposited or transferred to a designated emergency account. This amount should be separate from your other savings for retirement, a home, or other future purchases. See if there are account options available so you can’t access it with your debit card and, therefore, won’t be tempted to spend it.

Establishing a budget will also help you stay on track. After you’ve accounted for your monthly expenses and money toward your emergency fund, give yourself a small sum that you can spend as you please. Try to dedicate 50% of your pay to expenses like rent and utilities, 20% toward savings, and 30% for discretionary spending.

While each person’s emergency plan will differ, in general, aim to have three months’ worth of income saved. This amount may vary based on whether you have financial dependents, such as children or a spouse, and whether you’re part of a two-income household.

With hundreds of millions of dollars in assets and over 60,000 members across Hawaii, Hawaiian Financial Federal Credit Union is one of the leading financial institutions in the state, with a reputation for combining personalized service with technologically advanced personal banking solutions. Learn more about our broad array of services online, follow us on FacebookTwitter, and Instagram for news and updates, or call (808) 832-8700 on Oahu or toll-free at (800) 272-5255 with any questions.

Your Top Tax Questions About Working Remotely, Answered

This past spring, many of us were asked to leave the office and begin working remotely from home. If you were one of them, you know that presented a lot of issues to be solved as you juggled work and family, including children newly banished from their schools. It was a tumultuous time, and congratulations for dealing with it powerfully and creating solutions that worked for everyone. Whew!

Now, with tax time approaching, there are tax implications of working remotely that you need to address, and we are here to help. So, let’s take a look at the tax issues of remote employment.

What tax issues? I still pay tax on my income, right? Yes indeed. The income from your job will be reported to you on a W-2 in January, and you’ll report that income on your tax return. Nothing there has changed, at least for the federal tax return. But you may have special tax issues to deal with when you file your state income tax return unless you live and work in a state that has no income tax.

What’s different about state returns for remote employment? If you live in the same state in which your employer is located, state taxes are pretty straightforward. But when the pandemic hit and commuting to the office became a thing of the past, many people left urban areas and moved to the less-populated country where it was less expensive to live. If you crossed state lines to do that and now live in a different state from your former office, you may be dealing with the income tax rules of two states, not just one.

Oh no, do I owe taxes to both states? Good question – it depends. Most states look to your physical presence in determining whether to tax you. If that’s the case, if you live and work in one state for an employer in another state, you will only owe tax to the state in which you live and work. But each state is different, so be sure to use tax preparation software such as TurboTax® that considers the facts and circumstances of your employment situation in light of the tax laws of the states involved.

Can I deduct the costs of working from home, such as my computer, internet, office furniture, and supplies? Probably not. Unfortunately, the tax act passed at the end of 2018 axed those deductions for most employees, with the exception for teachers that allows them to deduct up to $250 for supplies used in the classroom. If you aren’t entitled to a deduction for your expenses, your best bet is to ask your employer to give you a non-taxable reimbursement for those costs.

When it’s time to file your taxes, TurboTax® is here to help!

From simple to complex taxes, TurboTax has you covered. And when you need help, real experts are standing by — and can even do your taxes for you, start to finish with TurboTax Live®. Getting your biggest possible tax refund has never been easier. And as a credit union member you can save up to $15 on TurboTaxClick here to get started today!

With hundreds of millions of dollars in assets and over 60,000 members across Hawaii, Hawaiian Financial FCU is one of the leading financial institutions in the state, with a reputation for combining personalized service with technologically advanced personal banking solutions. Learn more about our broad array of services, follow us on Facebook, Twitter, and Instagram for news and updates, or call (808) 832-3700 on Oahu or toll-free at (800) 272-5255 with any questions.

Tax Tips for Unemployment Income If You’ve Been Laid Off or Furloughed

If you lost your job or were furloughed this year, we are so sorry. If you were lucky, your company may have paid you furlough or severance. Either way, you likely applied for unemployment benefits, once you could get through on the busy, busy phone lines. And now, with tax time approaching, you may wonder if you owe taxes on the money you received, and if so, when and how you need to pay the tax.

Is my furlough pay or severance taxable?

Unfortunately, yes, any furlough pay and severance benefits from your employer is taxable, and your employer probably withheld taxes from that pay. The income and withholding will be included in the W-2 you receive in January. You’ll report the W-2 information on your tax return for 2020 and pay any taxes still due or, fingers crossed, claim a refund for overpayment.

I got laid off, do I have to pay tax on my unemployment?

If you received unemployment benefits you will owe federal income tax on those benefits, and you’ll receive a Form 1099G reporting that income to you. You may owe state income taxes as well, unless you live in one of the six states that don’t tax unemployment benefits (California, Montana, New Jersey, Oregon, Pennsylvania and Virginia), or one of the seven states that don’t have a state income tax.

Withholding taxes are not automatically taken out of unemployment benefits, so unless you opted to have taxes withheld anyway, no taxes were withheld. At this point some you are beginning to get the not-so-lovely picture. Taxable income received; no taxes withheld – uh oh! – taxes owed.

Isn’t the extra $600 federal benefit exempt from tax?

No, afraid not. The State unemployment benefits were boosted by a $600 per week Pandemic Unemployment Assistance supplement through June 2020. That supplement will be included in your taxable income on Form 1099G.

Here’s a small glimmer of hope

Your tax bracket will be low if your income for the year was low, which reduces the taxes you owe. But even if you don’t plan to file and pay until the April 15 filing deadline, consider preparing your tax return soon after the first of the year. That will give you a realistic picture of your tax situation plus a few extra months to find the money to pay the taxes.

When it’s time to file your taxes, TurboTax® is here to help!

From simple to complex taxes, TurboTax has you covered. And when you need help, real experts are standing by — and can even do your taxes for you, start to finish with TurboTax Live®. Getting your biggest possible tax refund has never been easier. And as a credit union member you can save up to $15 on TurboTaxClick here to get started today!

The Impact of Stimulus Payments on Your Taxes

What a year 2020 has been! New Year’s celebrations were barely over when the coronavirus turned things topsy-turvy. But one bright spot for 159 million people was the $1,200 Economic Impact Payment that appeared in their mailbox or checking account. 

If you didn’t receive a payment, you may be wondering, why? And if you did, you may be wondering, what’s the catch? We are here to help put your mind at ease, so let’s tackle your questions, one by one.

Do I owe tax on the money I received? That’s an easy one: No. The stimulus payment was designed to impact the economy, not your taxes, so it won’t reduce your 2020 refund or increase your tax due. 

I didn’t get a payment – why? If your income for 2019 or 2018 was over $75,000 ($150,000 if you filed jointly, $112,500 if you were head of household), then your payment was reduced by $5 for every excess $100 you earned.  And if you didn’t file a tax return for either year, you may not have gotten a payment. But don’t despair, you still may be entitled to payment.

Really? What can I do now? If you were supposed to file a 2019 tax return and didn’t, file right away. If your income was too low to file, at IRS.gov you can click on the tab marked “Non-filers” and fill in your basic information. If the IRS determines you are eligible for a payment, they will send it to you. 

What if my income has gone down? If your 2019 income was too high for you to receive a payment, but your income this year is much lower, you are in luck. You can claim your stimulus payment on your 2020 income tax return, and it increase the refund you receive (or reduce any tax due).

My 2020 income is higher than in 2019 – will the government want the money back? No. If you received a stimulus payment based on lower income in 2019, that payment is yours to keep even if your income increased above the threshold in 2020. 

When it’s time to file your taxes TurboTax is here to help! 
From simple to complex taxes, TurboTax® has you covered. And when you need help, real experts are standing by — and can even do your taxes for you, start to finish with TurboTax Live®. Getting your biggest possible tax refund has never been easier. And as a credit union member you can save up to $15 on TurboTaxClick here to get started today!

The Do’s and Don’ts of Improving Credit Scores

Before you make a major purchase that requires a loan, such as a car or a home, it’s wise to boost your credit score. Your efforts will secure more desirable terms, such as a reduced interest rate or a larger loan amount. Learn what to do and common mistakes to avoid as you work to improve your credit.

Do:

Pay bills on time.

Late payments on credit cards, loans, utility bills, and other bills will hurt your score. Pay these bills in full rather than the minimum amount. Set up notifications on your calendar or automatic payments to ensure you don’t miss anything.

Check your report for inaccuracies.

You get a free credit report from each of the credit agencies once a year: TransUnion®, Equifax®, and Experian®. As a result, you can request a free report once every four months. They aren’t perfect, so check for any discrepancies and dispute them if you find any. Fixing inaccuracies will improve your score.

Don’t:

Close your unused accounts.

Your credit utilization ratio refers to the amount of credit you have available versus the amount you use. The general rule of thumb is the more unused credit you have, the better it will boost your score, so keep extra cards open.  However, having too many cards open is not good for your score either.

Apply for new credit accounts.

Applying for new credit will create a hard inquiry on your report, which will reduce your score for about two years. Instead, ask your creditors to increase the spending limit of your existing accounts. This will avoid a hard inquiry and reduce your credit utilization ratio if you keep your credit usage the same.

With hundreds of millions of dollars in assets and over 60,000 members across Hawaii, Hawaiian Financial Federal Credit Union is one of the leading financial institutions in the state, with a reputation for combining personalized service with technologically advanced personal banking solutions. Learn more about our broad array of services online, follow us on FacebookTwitter, and Instagram for news and updates, or call (808) 832-8700 on Oahu or toll-free at (800) 272-5255 with any questions.