The I.R.S. begins accepting tax returns on Friday. Millions of people received stimulus payments and unemployment assistance last year — but they are treated differently for tax purposes. In this week’s Your Money Adviser column, Ann Carrns lays out the implications for both.
The good news is that you don’t have to pay income tax on the stimulus checks, also known as economic impact payments. In fact, if you were paid the amount you were expecting and your family circumstances haven’t changed, you don’t need to include information about the payments on your 2020 tax return, the Internal Revenue Service says.
If you were eligible for the payments, but didn’t receive them for some reason — or didn’t receive the full amount — you can still get the money by claiming a “rebate recovery” credit on your 2020 tax return. You must file a return, even if you’re not otherwise required to do so, to claim the credit.
Similarly, if you had a life change in 2020 — like the birth of a child, or if you are supporting yourself and are no longer claimed as a dependent on a parent’s tax return — you could be eligible for more cash by claiming the credit on your 2020 return.
Unlike stimulus payments, jobless benefits are taxed by the federal government as ordinary income. (You won’t, however, pay Medicare and Social Security taxes on jobless benefits as you would with paycheck income.)
You should receive a form, 1099-G, detailing your unemployment income and any taxes that were withheld, which you enter on your tax return.
You’ll probably also owe state income taxes on the unemployment benefits, unless you live in one of the nine states that don’t have a state income tax or a few others that exempt jobless benefits, including California, Montana, New Jersey, Pennsylvania and Virginia. Wisconsin exempts jobless benefits for state residents, but taxes benefits paid to nonresidents, according to the Tax Foundation.
To understand how severe the pandemic’s economic toll has been in Britain, you have to stretch back three centuries. The economy contracted by 9.9 percent in 2020, initial estimates from the Office for National Statistics showed on Friday. A study of historical data by the Bank of England shows that recession to be the worst since 1709, the year of the so-called Great Frost, an extraordinarily cold winter in Europe.
Even with nearly 300 billion pounds, or about $415 billion, in stimulus for businesses, jobs and public services including the National Health Service, the restrictions introduced to contain the pandemic shrunk the economy back down to its size in 2013.
Britain’s service sector, which makes up four-fifths of the country’s economy, declined by 8.9 percent. But the pain has been uneven: Restaurants, hotels, theaters and other leisure services have been particularly pummeled, while professional, financial and health services weren’t as badly hurt. A recent survey suggests that about half of hospitality businesses have less than three months of cash reserves.
The economic cost, in some ways, reflects the broader devastation of the pandemic. There have been more than 115,000 Covid-related deaths in Britain, which has the harrowing distinction of recording the most deaths in Europe.
But the outlook is improving, both for public health and for the economy. The country looks set to avoid a double-dip recession, which would have resulted from two consecutive quarters of negative growth following the downturn in the spring of 2020. In the last three months of the year, the statistics office reported, gross domestic product increased 1 percent from the previous quarter, more than most forecasters expected.
Despite the discovery of a more contagious variant of the coronavirus in Britain, the economy grew at the end of the year because more businesses were able to adapt to restrictions, schools remained open and contact tracing and widespread testing added to economic activity. Warehousing and transportation also added to growth as consumers spent more online during the holiday period and businesses stockpiled ahead of the end of the Brexit transition period.
The economy is expected to contract again in the first few months of 2021 because most of Britain is under a strict lockdown and trade has been disrupted by Brexit, but the rapid rollout of vaccines has bolstered expectations for an upbeat recovery later in the year. The Bank of England expects the economy to return to its pre-pandemic size by early 2022 as consumers spend the savings they accumulated while services, such as restaurants, hairdressers and hotels, have been closed.
As brisk wintry winds continue to blow across Britain, the country’s central bank revealed on Friday that last year’s recession was the worst since 1709, the year of the “Great Frost.”
That winter, 312 years ago, was horrifically cold, as freezing temperatures stretched from Britain to the Mediterranean. As the cold took hold for three months, Britain’s residents, 6.5 million at the time, faced great hardship as people froze to death, harvests were ruined, shipping ports froze over and the economy plunged into a recession.
That January, the mean temperature was -1.5 degrees Celsius, or near 30 degrees Fahrenheit, in central England, said Stephen Burt, a visiting fellow in the meteorology department of the University of Reading. A cold period in 2018, referred to as the “Beast from the East,” lingered a few days and brought temperatures to -30 degrees Celsius, or -22 degrees Fahrenheit, according to the BBC. But that doesn’t compare to the winters of the 18th century, he said.
“I believe this Frost was greater (if not more universal also) than any other within the Memory of Man,” William Derham, an English clergyman and philosopher in Upminster, near London, wrote in January of 1709, after recording his lowest thermometer reading since 1697.
The unusual cold snap of 1709 was part of the Little Ice Age, a period that spanned from the early 14th century to mid 19th century. Scientists point to myriad factors for the extreme weather: weak solar activity, increased volcanic activity, glacial expansion and increased vegetation from colonization caused temperatures in the Northern Hemisphere to plunge.
As the catastrophe spread across Germany, Italy, Denmark and France, so did the impact on local life and agriculture, as birds dropped “down out of the air” and fish were frozen in ponds. When the river Thames froze over, it became home to a “frost fair,” where Londoners indulged in roasted mutton and gingerbread on the ice.
Only a pandemic could inflict the economic damage wrought by the Great Frost. In 2020, Britain’s economy contracted by nearly 10 percent, the Office for National Statistics said Friday. Historical data from the Bank of England shows the 2020 recession to be the worst since 1709, when the economy shrank by 13 percent.
“We’ve had nothing like 1709 for 200 years or more,” Mr. Burt, of the University of Reading said on Friday. “If we had a winter like that these days, I’d dread to think how the country would react.”
Treasury Secretary Janet L. Yellen told the world’s top economic officials on Friday that the United States intended to deepen international alliances and re-engage in the fight against climate change.
Ms. Yellen’s comments came during her first Group of 7 meeting in her role as Treasury secretary and reflected the Biden administration’s efforts to embrace the types of multilateral institutions that the Trump administration tended to hold in low regard. The meeting of the leading industrial nations, which was held virtually, came as the global economy continues to grapple with the fallout from the coronavirus pandemic and as countries are racing to deploy vaccines.
The United States “places a high priority on deepening our international engagement and strengthening our alliances,” Ms. Yellen said.
Ms. Yellen told finance ministers and central bank governors of the G7 that further fiscal support was needed, saying, “The need to go big is now,” according to a summary of her remarks provided by the Treasury Department. The sentiment echoes what Ms. Yellen has told lawmakers in the United States as President Biden looks to push a $1.9 trillion stimulus package.
Ms. Yellen highlighted climate change as an issue where the United States will resume a position as a global leader, noting, “We understand the crucial role that the United States must play in the global climate effort.” She indicated that the Treasury’s engagement on the issue would change substantially from the stance taken by her predecessor, Steven Mnuchin.
At a Group of 20 summit meeting a year ago, Mr. Mnuchin resisted the inclusion of the phrase “climate change” in a joint statement that was drafted at the conclusion of the meeting.
Ms. Yellen plans to appoint a senior climate official at the Treasury Department and create a hub within the agency to focus on policies that will combat climate change.
The G7 is being hosted by Britain this year. Rishi Sunak, the chancellor of the Exchequer, said climate considerations should be a central part of the group’s agenda this year with a goal of a “truly green economic recovery.”
A trio of Fox anchors who were among the defendants in a $2.7 billion lawsuit that accused them of helping spread lies about the election technology company Smartmatic have filed motions to dismiss the case.
The motions, filed separately on Thursday night by the anchors Maria Bartiromo, Jeanine Pirro and Lou Dobbs, whose Fox Business program was canceled last week, followed a motion to dismiss filed on Monday by Fox Corporation.
The anchors’ arguments are a version of the one offered by Fox. They say they were fulfilling a journalistic role in giving a platform to Rudolph W. Giuliani and Sidney Powell, the legal representatives of former President Donald J. Trump who made false claims about Smartmatic and its role in the 2020 election. In addition to the three anchors and Fox Corporation, Smartmatic has sued Mr. Giuliani, Ms. Powell and Fox News as part of the defamation suit.
Ms. Pirro’s motion, for example, argues that her commentary “centered on newsworthy events of the highest order — namely, the fact that the sitting President had refused to accept the outcome of a presidential election.”
The three motions were written by the legal team representing Fox Corporation, a group headed by Paul D. Clement, a partner in the Washington office of the law firm Kirkland & Ellis.
The motion filed on behalf of Mr. Dobbs acknowledges that he had expressed skepticism about the election on his show, quoting him as having said, “Only an idiot would try to claim that there were no irregularities, that there were no anomalies.” Statements like that one, the motion argues, represented the “spirited opinion commentary that viewers of ‘Lou Dobbs Tonight’ had come to know and expect.”
Big banks’ health will be tested against a more dire economic scenario in 2021 than in years past, as the Federal Reserve tries to paint a realistic picture of what an economic turn for the worse would look like at a time when unemployment is already elevated amid the pandemic.
The Fed’s “severely adverse” scenario, in which the unemployment rate has typically topped out at 10 percent, will now have it rising 4 percentage points to 10.75 percent in the third quarter of 2022. Asset prices also drop sharply in the scenario, with stocks sliding 55 percent.
The Fed uses the stress test to gauge the health of the nation’s largest banks and to take a snapshot of how they would fare amid a crisis. Last year’s severe scenario was rapidly outdated as the coronavirus crisis unfolded, so the Fed tested banks against a second set of scenarios and ran a special analysis released in December.
The Fed temporarily limited shareholder payouts, but it allowed them to resume, with some limitations, for profitable banks after the December 2020 round.
The Fed usually conducts stress tests on large bank holding companies that it oversees once a year, a practice put in place by the Dodd-Frank financial reform law established after the 2008 financial crisis.
This year, 19 large banks will be tested, while slightly smaller ones are on a two-year testing cycle. They can opt into the test this year, and must do so by April 5.
The chairman of KPMG’s unit in Britain resigned on Friday after he told staff earlier in the week to not “sit there and moan” when they talked about the impact of the pandemic on their working lives.
Bill Michael, who had been in the position since 2017, will leave the audit and consulting firm at the end of February, KPMG UK said.
The comments attracted internal complaints for being insensitive. Britain is under a strict lockdown and for the majority of the past year, the government has instructed people to work from home if they can. As the pandemic has worn on, there has been a growing concern about the mental health effects of the lockdown.
The comments were made in an online staff meeting on Monday, during which employees raised concerns about cuts to their pay and pension contributions. Mr. Michael also told staff to not “play the victim card,” The Financial Times reported on Tuesday.
After that report, KPMG said Mr. Michael was temporarily stepping aside as it investigated his comments.
But the situation worsened on Thursday when The Daily Mail published a recording of the meeting. In the video, Mr. Michael also says: “There is no such thing as unconscious bias. I don’t buy it. Because after every single unconscious bias training that’s ever been done, nothing’s ever improved.” He also said unconscious bias was “complete and utter crap.”
Last week KPMG UK, which has a little more than 15,000 employees, reported its annual results, and said it was investing 44 million pounds ($61 million) in moving to a hybrid work model where employees would work from their homes and the office. The results also highlighted the firm’s diversity and inclusion efforts, including reporting pay gaps based on gender, ethnicity, sexual orientation and disability.
“The thousands of talented people at KPMG bring with them a multitude of perspectives and experiences,” Mr. Michael said in a statement alongside the earnings report. “We do not want gender, ethnicity, identity, disability or background to be a barrier to anyone’s career at KPMG.”
Mr. Michael, 52, has worked at KPMG for three decades. “I love the firm and I am truly sorry that my words have caused hurt amongst my colleagues and for the impact the events of this week have had on them,” he said in a statement on Friday. “In light of that, I regard my position as untenable and so I have decided to leave the firm.”
Superman, Batman and Wonder Woman, superheroes that belong to WarnerMedia’s DC universe, will be reunited with some old colleagues starting this spring: Static, Hardware, Icon and Rocket, among others.
DC announced on Friday details of its revival of Milestone Comics, a groundbreaking comic-book imprint that flourished in the 1990s with stories centered on Black, Asian, Hispanic and gay superheroes.
The Milestone characters, which were first published in 1993 and ran through 1997, will return in six-part series that will appear online and as 20-page comic books priced at $4. Static comes back on April 12, followed by Icon, Rocket and Hardware in the summer.
DC’s Milestone revival has been in the works since 2015, but new stories with its heroes did not appear until last year, with the release of Milestone Returns, which set the stage for the comeback. On Feb. 23, DC will post an expanded version of that comic, with 24 additional pages. The new material will retell the events of the “Big Bang,” a protest against police violence that somehow ignited a wave of superpowers within Milestone’s fictional flagship city of Dakota. The print version will arrive in stores May 25.
The new material was written by the filmmaker Reginald Hudlin, a partner in Milestone Media. The company was originally founded by Denys Cowan, Michael Davis and Derek Dingle and Dwayne McDuffie in 1993. One of its biggest successes is the hero Static, who starred in “Static Shock,” a WB network animated series, and returned to comics in 2008.
Wall Street recovered its early losses on Friday. Most Asian markets were closed for the Lunar New Year holiday.
The S&P 500 rose half a percent. In Europe, the benchmark Stoxx Europe 600 rose 0.6 percent, while the FTSE 100 in Britain gained 0.9 percent.
Prospects for President Biden’s $1.9 trillion stimulus package may have brightened after the Congressional Budget Office on Thursday predicted a $2.3 trillion budget deficit for the 2021 fiscal year, a figure lower than last year’s $3 trillion deficit.
The estimate did not include Mr. Biden’s proposal, but “Democrats viewed the report as giving them room to borrow more money given that it projected a rosier longer-run economic picture than last fall,” reported Jim Tankersley and Emily Cochrane in The New York Times.
The U.S. economy is recovering faster than expected, thanks to the $900 billion aid package approved in December and the fact that businesses are finding ways to adapt to the pandemic.
Britain’s small economic rise
Data released Friday showed the British economy rising 1 percent in the final three-month period of 2020, compared with the previous quarter. That’s better than expected, and allows Britain to avoid a double-dip recession in 2020.
Double dip or no, 2020 will go down in Britain’s economic history books as distinctly horrible: The 9.9 percent decline in the economy was the worst performance since 1709.
Oil prices rose by more than 2 percent, with Brent crude, the global benchmark, trading over $62.50 a barrel, and West Texas Intermediate, the U.S. benchmark, just above $59.50 a barrel.
The International Energy Agency’s monthly report for the oil market, often seen as an indicator of global economic activity, included a 0.2 percent downward revision in its estimate of the world’s demand for oil, to 96.4 million barrels a day.
“The forecasts for economic and oil demand growth are highly dependent on progress in distributing and administering vaccines, and the easing of travel restrictions in the world’s major economies,” the report said.
Bitcoin set yet another record, with its price approaching $49,000 per coin, as mainstream adoption of the cryptocurrency appears to gather pace. This week, Tesla announced that it had bought $1.5 billion worth of Bitcoin, Mastercard said it would soon support cryptocurrencies and Bank of New York Mellon shared plans for custody services for digital assets.
As a result, executives across the corporate world have been fielding questions about whether they are considering shifting cash into crypto. “Just a follow-up,” a Morgan Stanley analyst asked G.M.’s chief, Mary Barra, on the carmaker’s recent earnings call. “It’s a question on Bitcoin. It’s inevitable.”
Here’s how Ms. Barra, and others, have responded:
“We don’t have any plans to invest in Bitcoin, so full stop there. This is something we’ll monitor and we’ll evaluate.” — Mary Barra, the chief executive of General Motors
“It’s a conversation that’s happened that has been quickly dismissed. We’re going to keep our cash safe.” — Dara Khosrowshahi, the chief executive of Uber, on CNBC
“My understanding is currently the accounting is different than other currencies and can create more volatility. So we’re not currently doing it.” — Leslie Barbi, the chief investment officer of Reinsurance Group of America
“We’re not going to invest corporate cash, probably, in sort of financial assets like that.” — John Rainey, the chief financial officer of PayPal, on CNBC
“A quick answer: No.” — Christine Hurtsellers, the chief executive of Voya Investment Management