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Liz Weston

The tax credit fix many can’t afford to miss

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Families battered by the pandemic recession soon may discover that the tax refunds they’re counting on are dramatically smaller — or that they actually owe income tax. Congress offered a partial solution, but the fix hasn’t been widely publicized, consumer advocates say.

Refunds are crucial to many lower- and moderate-income households, which use the money to catch up on bills and medical treatments, pay down debt and boost savings.

But the unemployment insurance that kept many people afloat last year may cause problems at tax time this year. In my latest for the Associated Press, how a tax credit fix could lessen the blow of unemployment benefits taxes.

Monday’s need-to-know money news

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Today’s top story: A guide to PPP loan forgiveness. Also in the news: High car insurance rates could be because of bad credit, 4 signs your about to get a tax surprise, and how to budget when you hate to budget.

A Guide to PPP Loan Forgiveness

High Car Insurance Rates? Bad Credit May Be to Blame
Not paying bills might hurt you more than you think. Drivers with poor credit pay over 75% more annually in some states.

4 Signs You’re About to Get a Tax Surprise
If any of these things have happened to you, a tax surprise may be coming.

How to Budget When You Hate to Budget
Automation, technology and some simple guidelines can help you budget without a huge amount of effort and stress.

Q&A: Survivor vs. retirement benefits

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Dear Liz: I was 21 and my husband was 69 when we got married. He died in 1992 after 13 years of marriage. Our young son and I received survivor benefits for years. I got remarried in 2000 and divorced in 2008. When I reach my full retirement age of 66 years and 8 months, could I still claim survivor benefits from my first husband?

Answer: Yes, although you may want to start them sooner.

If your second marriage had lasted, you wouldn’t have been eligible for survivor benefits based on your first husband’s earnings record. Widows and widowers who remarry before age 60 aren’t eligible for survivor benefits.

Since that marriage ended, though, you were eligible to begin benefits at age 60. You are also free to remarry at 60 or later without losing those benefits.

Starting before your full retirement age for survivor benefits, however, means your check would be reduced and also subject to the earnings test, which reduces your benefit by $1 for every $2 you earn over a certain amount ($18,960 in 2021).

As mentioned in a previous column, your full retirement age for survivor benefits is different from your full retirement age for retirement benefits. Since you were born in 1958, your full retirement age for survivor benefits is four months earlier, or 66 years and 4 months.

In most cases, starting a Social Security benefit early locks you into a smaller check permanently. With survivor benefits, though, you also have the option of switching to your own retirement benefit later, if it’s larger. The ability to switch benefits is severely limited with Social Security, but survivor benefits remain the exception.

Being eligible for survivor benefits complicates claiming decisions, so consider using a more sophisticated claiming calculator such as Maximize My Social Security or Social Security Solutions to determine how best to file.

Q&A: Should you pay down debt with extra cash? It may not be the best plan during a pandemic

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Dear Liz: I’m a teacher on an income-based repayment plan for my federal student loans. I don’t qualify for any loan forgiveness programs for teachers because I teach in an affluent area. Right now, interest and payments on federal education loans have been suspended because of the pandemic.

I’m trying to decide what to do when payments have to restart. Should I pay down a chunk of the loans from the money that accumulated in my savings from not having to make loan payments since April? Or pick back up where I left off with making near-double payments to get down the principal (slowly) and pay off loans in another five to six years? Or only make the minimum income-based payments while waiting to see if the new administration offers more comprehensive loan forgiveness for teachers? Thank you for any insights.

Answer: Although you may not qualify for loan forgiveness through programs meant to help underserved communities, you can still qualify for the federal public service loan forgiveness program. This program erases debt for schoolteachers and other public servants after they’ve made 120 qualifying payments toward their federal student loans.

You can learn more about this program at the U.S. Department of Education site. Follow the rules carefully because many people who thought they were on track to get forgiveness have discovered otherwise.

If you’re eligible, consider making only the minimum payments on your loans so that the maximum amount is forgiven. Even if you’re not eligible for forgiveness, though, you don’t necessarily want to rush to pay off this relatively low-rate, tax-deductible debt.

You should be on track with your retirement savings, have paid off all other, higher-rate debt and have a substantial emergency fund before you make extra payments on education debt (or a mortgage, for that matter). “Substantial” means having three to six months’ worth of expenses saved. If your job is anything less than rock solid, you may want to set aside even more.

Keep in mind that the money you send to your lenders is gone for good; you can’t get it back should you need it later.

Friday’s need-to-know money news

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Today’s top story: These savings accounts give you a chance to win cash. Also in the news: How to pull off a month of no spending, how young drivers can steer clear of costly car insurance, and how to find legal advice if you can’t afford a lawyer.

These Savings Accounts Give You a Chance to Win Cash
Learn about prized-linked savings accounts.

Should you try a ‘Frugal February’? How to pull off a month of no spending
It can be a good way to get your finances — and priorities — back on track

How young drivers can steer clear of costly car insurance
Finding a good deal on good coverage.

How To Find Legal Advice If You Can’t Afford a Lawyer
Legal aid helps low-income people.

Thursday’s need-to-know money news

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Today’s top story: Hotels turn to elopement package to attract those planning weddings. Also in the news: Ideas for paying off credit card debt, how the pandemic has changed Americans’ financial thinking, and how President Biden’s executive orders will affect your debt.

Hotels Turn to Elopement Packages to Attract Those Planning Weddings
These deals can save you money on your wedding, and earn you points — as long as you keep the guest list small.

Ideas for paying off credit card debt
Tackling your debt in the new year.

‘Financial security is fun now.’ Many Americans want to keep saving more and spending less
A pandemic shift to a simpler financial life—how you can do it, too

How Will Biden’s Executive Orders Affect Your Debt?
Another extension on student loan payments.