Ask Liz Weston

Get smart with your money

q&a

Q&A: The IRS is finally staffing up. Here’s how to get your coronavirus stimulus money

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Dear Liz: We do not make enough income to file tax returns, so we used the IRS site to apply for our economic stimulus payment ($1,700 for one adult and one teenage child). We received a response email stating our information was received successfully by the IRS several weeks ago. We included our bank deposit information for a fast direct deposit but the money has not arrived and we hear that the government ran out of money. We are desperate. What can we do or who can we speak with about this delay?

Answer: The government did not run out of money, and at a minimum you should be able to file a tax return next year to get your stimulus payment as a refundable credit. Since you need the money now, though, you should follow up with the IRS.

The IRS has reopened the general taxpayer helpline that was shuttered because of the coronavirus pandemic, but it has also added thousands of phone reps to a special hotline to deal with stimulus payment problems: (800) 919-9835. That’s the number you should call to inquire about your payment.

(Previous columns have dealt with people’s refunds being held up because the IRS didn’t have enough workers to open its mail. Tax processing centers are reopening, but it will take awhile to work through the backlog. You can check the status of a refund through the “Where’s My Refund?” tool on the IRS site or by calling (800) 829-1954.)

Q&A: The ups and downs of reverse mortgages

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Dear Liz: I have been a reverse mortgage specialist for the last 12 years and had some thoughts about the writer who complained that the $40,000 she initially borrowed had grown to a debt of $189,000, or more than her home was worth.

Using a compound interest calculator, it would take about 16.5 years for the debt to grow that large. The borrower would have lived in their home for all that time without making payments toward the debt, although they were still responsible for taxes, insurance and maintaining the property. They can stay in the home for as long as it’s their principal residence. Once they leave the home, the lender will sell the home and receive the difference between the sales price and the loan balance from the government insurance program that everyone with a reverse mortgage pays into. Otherwise, no lender would take out this loan for a potentially long term and risk losing money in the end. Maybe it was a good deal.

Answer: Possibly, but she regretted the decision anyway. She took out a reverse mortgage at a time of financial hardship and now wishes she hadn’t.

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People facing financial crises often develop tunnel vision and grab at solutions without thinking through the future costs of their decisions. (The excellent book “Scarcity: Why Having Too Little Means So Much” by Sendhil Mullainathan and Eldar Shafir explains the science of why that happens.)

Advertising for these loans can gloss over the downsides, such as potentially not being able to tap your equity later, when you may need it more. Reverse mortgages can be a good solution for some seniors but certainly not all of them.

Q&A: Tapping IRA creates a taxing problem

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Dear Liz: I took $250,000 out of my retirement account in 2019 to set up five 529 accounts for my young grandchildren. As a result, my federal and state tax bills are $80,000. I’ll need to take that money out of my IRA. Will I keep having to pay large tax bills in order to pay for that one-time large withdrawal?

Answer: While your heart was in the right place, your money wasn’t. Withdrawals from IRAs are taxable, and such a large withdrawal almost certainly pushed you into a much higher tax bracket. If you had consulted a financial planner or a tax pro, they would have advised you to either fund the 529s from a non-retirement account or to make smaller withdrawals over several years to avoid such a big tax hit.

If you continue to tap your IRA, you will continue to owe taxes on the money you withdraw. The $80,000 will incur state and federal taxes. If you again pay the tax bill on the $80,000 using your IRA, you’ll owe taxes on that money as well, and so on.

You may not think that’s fair, but the reason your IRA is taxable now is because you got a tax deduction when you made the original contributions, and the money has been growing tax deferred in the meantime. Eventually, the government wants to get paid back for those tax breaks.

Q&A: Once is enough for tax returns

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Dear Liz: You’ve covered the fact that 2019 tax refunds, especially for those of us who filed paper returns, are delayed. After days of trying to get through to someone at the IRS, I actually connected with an agent. After he told me there are massive problems in their mailroom, I said I was going to file again except this time I would do it electronically. His response, “Don’t do that because it will be a mess.” Can you check with your IRS contacts and see if they are adamant against refiling electronically?

Answer: Adamantly and emphatically, the IRS does not want people to file duplicate returns. Not only will that add to the agency’s already massive backlog, but duplicate returns can trigger identity theft protocols that could make it harder for you to file your returns in the future.

“The only time you would really want to file a duplicate return is when the IRS sends you a notice that the return you previously filed was never received,” said Henry Grzes, lead manager for tax practice and ethics at the American Institute of Certified Public Accountants. In the past, those notices were sent out 12 to 18 months after the return was due.

Many people have been waiting months for their refunds because of pandemic-related shutdowns. The IRS is slowly reopening the processing centers that were closed, but the backlog is tremendous. Although the agency was able to send out more than 150 million stimulus checks and to process most electronically filed returns, more than 10 million unopened paper returns and other mail had accumulated by mid-May.

The agency has been bringing back its workforce in stages, and the last of the IRS’ processing centers is scheduled to open June 29. In addition to the backlog, they’ll be dealing with even more filings as the extended July 15 tax deadline looms. In short, it’s unclear how much longer you’ll have to wait to get your refund.

The fact that you got through to a human being at all means you beat the odds. As mentioned in the previous column, the IRS was struggling even before the pandemic because of congressional budget cuts. Last year the agency was able to answer fewer than 1 in 4 phone calls, according to the Taxpayer Advocate Service.

Q&A: How the COVID-19 pandemic is delaying inheritances

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Dear Liz: My mother passed away in March due to old age. She lived in California. I live out of state and couldn’t travel because of the pandemic. My siblings took care of her burial. Her will named me executor. I’d like to know how long I have to settle her estate and whether I will need an attorney. Her house was her major asset and was assessed at $400,000. There’s no mortgage. The house goes to an older brother and me, and two grandsons each get $10,000. I want to make sure the grandsons get their inheritances as soon as possible.

Answer: Your grandsons will have to wait awhile. California probate is slow at the best of times, with a typical case taking eight to 12 months or more. Pandemic-related court closures are adding many months to the process. Courts are slowly reopening but dealing with a significant backlog of filings.

Your mother’s will should be filed with the appropriate county within 30 days of her death and the county tax assessor should be notified within 150 days because she was a property owner, said Jennifer Sawday, an estate planning attorney in Long Beach. Though most counties allow electronic filing for probate matters, it’s typically not the most user-friendly process and you may want to consult a probate attorney. The initial consultation is usually free. Hiring an attorney to handle the whole process probably won’t be cheap: By law, probate attorneys can charge 4% of the first $100,000 of the estate, 3% of the next $100,000, 2% of the next $800,000, 1% of the next $9 million, and 0.5% of the next $15 million.

Your mom could have avoided probate entirely if she’d created a revocable living trust, or if she had taken other probate-avoidance measures. In California and many other states, real estate can be passed on with a “transfer on death” deed that avoids probate. She also could have set up bank accounts and designated your grandsons as beneficiaries to avoid probate.

It’s too late now, obviously. But whatever you do, don’t jump the gun by making distributions, Sawday warned.

“If there is a will, under no circumstances should he make the cash gifts to the grandsons until the court admits the will, appoints him as executor and probate actually commences,” Sawday said.

Q&A: Why tax refunds are taking so long to arrive

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Dear Liz: You mentioned that people who file electronically and use direct deposit generally get their refunds much more quickly than those who file paper returns. That has always been true for me, but this year I filed in February and got a message that there was a problem but not to contact the IRS for 60 days. Then COVID-19 happened and the IRS basically shut down. Can you tell me when they will release my money?

Answer: No one knows. The IRS is still in the process of calling employees back to work and some operations centers won’t reopen until later this month.

As employees return, they’re confronting an almost incomprehensible backlog of paperwork and requests for help. Millions of paper returns are sitting in trailers, waiting to be input into the IRS’ computers, and no one has been available to process electronically filed returns that were flagged because of problems.

People who have already been waiting months may still have to wait several weeks more before they see their money or can even access someone who knows what’s happened to their returns. As a reminder, the IRS extended the tax filing deadline to July 15.