The Balance is here to help you navigate your financial life. To that end, we track the money-related questions you most search on Google so we know what’s on your mind. Here are the answers to some of your most recent inquiries.
Why are bond yields rising?
Mainly because Federal Reserve Chair Jerome Powell said on Sept. 22 that due partly to supply bottlenecks, inflation is likely to remain more elevated and to linger longer than originally expected. He also said that if the job market continues improving, the Fed may start paring back its emergency, pandemic-era monetary support sooner than expected to help tame the higher inflation. Those comments sent bond yields into a more elevated range than where they’d been for most of the summer.
How come? In a nutshell, inflation erodes the value of money, so during periods of high inflation, consumers can buy less with their dollars because their money is worth less. Since bonds generally pay a fixed interest amount over the life of the bond, inflation makes those payments—and the bonds themselves—also worth less. As a result, people will often sell their bonds when inflation rises and put their money elsewhere, pushing bond prices down. Because a bond’s yield is inversely related to its price, the bond yield rises.
For example, the day after Powell’s comments about inflation, the yield on the 10-year Treasury bond—it’s the basis for determining the interest rate on most consumer loans—rose above 1.4% and stayed there, breaking out of the 1.2% to 1.4% range where it had been since early July.
The Fed’s summary of economic projections released on Sept. 22 showed higher median forecasts for inflation. It also indicated that inflation could remain above the Fed’s longer-run average 2% target through 2024. The central bank raised its 2021 inflation prediction to 4.2%, up from 3.4% in June, and its 2022 forecast to 2.2%, from 2.1%. Both are up from the Fed’s forecast in December, when it predicted that inflation would keep to a 2.0% clip both this year and next.
Can I call the IRS about my child tax credit?
You can try. The number to call the IRS with queries about the child tax credit—which was revamped significantly for 2021— is 1-800-829-1040. But will anyone pick up the phone? You might not like your odds. Try searching online for answers first, using one of several resources—it may be easier.
This year’s temporary radical overhaul of the child tax credit—including its increase to a maximum of $3,600 per child from the previous $2,000, and its partial delivery as monthly payments (from July to December) instead of all-at-once at tax time—has left taxpayers with plenty of questions. Confusion about the credit is widespread enough that millions of children in families newly eligible for the credit aren’t getting it, according to recent research.
While the IRS has its toll-free number—the one above—for taxpayers to phone about the child credit and other tax issues, recent reports show the agency has been completely overwhelmed by the number of calls it’s receiving. Only one out of every 50 callers got through to an IRS employee early in this year’s tax season (as of April 10), and there was an average wait time for each successful call of 20 minutes. Of 199 million phone calls from taxpayers in 2021, about 150 million went unanswered, even by an automated system. The agency said the complexity of pandemic-era changes to the tax code is partly to blame for the overload.
Fortunately, online resources are available for taxpayers to get some of their questions answered. A portal on the IRS website lets users check whether they’re enrolled to receive monthly child tax credit payments, opt out of the payments, change their address or bank account information, and view their payment history. People who don’t usually file taxes, possibly because they’d don’t earn enough money and don’t have to, can use a mobile-friendly site at www.getctc.org to sign up for payments. The IRS also has a page answering some of the most frequently asked questions.
What are SALT taxes?
SALT taxes—the name’s an acronym for state and local taxes—have been in the news lately because lawmakers in Washington, D.C., are trying to change the upper limit on the deduction for SALT that taxpayers are currently allowed to take on their federal income tax return.
Democrats including Rep. Tom Suozzi, D-N.Y., want to insert an agreement to eliminate or raise the cap on the SALT deduction into President Joe Biden’s $3.5 trillion social spending package, which is currently being negotiated. Bloomberg reported on Tuesday, however, that since the spending package was likely to be revised downward toward $2 trillion, changes to the SALT deduction cap would probably be less generous to taxpayers than originally planned.
Currently, taxpayers who itemize deductions on their 1040 can claim up to $10,000 in state and local taxes paid, including income and property taxes. The amount of the allowable deduction was capped at that figure in 2017 by the administration of President Donald Trump, and became effective in 2018. Before that, the write-off was unlimited.
Lawmakers in high-tax states like New York, New Jersey, and California say the cap unfairly disadvantages their constituents, some of whom pay far more than $10,000 a year in SALT taxes. These states are home to many high earners and people who own expensive, heavily taxed real estate.