Tax Update

May 25, 2020Evergreen Q2 2020, News

Woodstock Quarterly Newsletter Update


Understanding how safely or precariously one is perched financially is helpful in determining whether to remain calm or panic in a crisis. For those working Americans who expect to receive social security payments at retirement, it is calming to understand the magnitude of the commitment that you are making and will make to yourself under government direction. One example is a husband and wife, both age 45, expecting to receive $2,000 per month at retirement. An insurance company would have to set aside approximately $770,000 to provide the couple with that benefit, as the present value of those delayed payments.[1] You will provide that funding over your working life. It is a substantial achievement.

The individual stimulus money provided under the CARES Act (of up to $1,200 for individuals or $2,400 for married couples and an additional $500 for each qualifying child) is actually a prepayment of a 2020 tax credit. The qualifying income amounts are determined based on 2018 or 2019 tax filings for the payment of the stimulus money in 2020. The amount of the actual tax credit earned by the taxpayer will be determined on the 2020 income tax return filed in 2021. It actually is “an advance payment on a future tax cut.” Whether any individual has been paid too much or too little in the Spring of 2020 will be determined in early 2021.

Of course, tax regimes that run on a calendar year basis, where the government spends more annually than they take in, have no reserves to fund the kind of emergency we now find ourselves in. State and local governments attempt to provide “rainy day” funds to balance between good and bad years. The federal government forces itself to borrow from future revenue to respond to a crisis.

If you or any of your other advisors have questions about the issues raised here, please contact your investment manager or one of us.

William H. Darling, CPA – Chairman & President
Jeanne M. FitzGerald, CPA – Tax Manager


[1] WSJ, 4/3/20 J. Zweig.
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