Paycheck Protection Program for Musicians

Paycheck Protection Program for Musicians

Here’s information on the Paycheck Protection Program for musicians (PPP): what it is, who is eligible, how to apply.

As part of the $2 Trillion Coronavirus Stimulus Package, $349 Billion will fund loans to small businesses. These loans are designed to keep employees on the payroll and off unemployment. The loans are forgivable. The government doesn’t want you to pay them back, as long as you spend the money to pay employee salaries and benefits for two months. It’s called the Paycheck Protection Program.

But you’re a musician, not a business, right? Hold on, if you are self-employed, you may be eligible, even if you are the only “employee”. You don’t have to be incorporated or have a bricks and mortar store to be a business. The rules are quite broad. We will give you an overview of the program and then explain how you can apply as a musician. Applying for the PPP is straightforward using a two-page application.

Before we get into the PPP: apply for unemployment benefits if you are unemployed, even temporarily. The CARES Act added unemployment coverage for self-employed and independent contractors, for the first time ever. Benefits will be increased $600 a week on top of usual unemployment amounts, for the next four months. If you are concerned that Coronavirus closures might keep you unemployed for more than 8 weeks, unemployment might be the better option than the PPP. States are not yet taking applications for unemployment benefits for Independent Contractors. Hopefully that will be online in a few days. If you aren’t unemployed, impacted and still open for business, read on.

PPP Overview

The Paycheck Protection Program is a loan to businesses under 500 employees. The Small Business Administration (SBA) guarantees the loans, which will be provided through 1700 Banks and Credit Unions. Your bank is probably already an SBA lender. Technically, the PPP is a 2-year loan at 0.50% interest. Payments are not required for six months. If you spend the loan on allowable expenses within 8 weeks, then the loan will be forgiven. You also have to keep the same number of employees and not reduce payroll during this period. The loan forgiveness will be non-taxable. Steps:

  1. Apply for the loan at your bank using Model Application (link below).
  2. Spend the loan in the following eight weeks on payroll, benefits, and rent.
  3. Apply for loan forgiveness and document that the funds were spent as intended.

You must state on the application that your business was impacted by the Coronavirus and you need this money to meet payroll and expenses. This is easy. Concerts were cancelled. Music lessons are a non-essential business and were required to close in your area due to the shelter in place rules.

Loan Amount and Application

The application provides instructions to calculate your loan amount. You are eligible to borrow 2.5 months of payroll, up to $10 million. Payroll includes gross pay plus taxes. Salary eligible for loan forgiveness is capped to $100,000 per person annually.

Then over the next eight weeks, you can spend the loan on payroll, payroll taxes, employee benefits, including health insurance premiums, retirement plan contributions, and sick leave or vacation. You can also spend the money on rent or mortgage interest for your business property (if you have a studio, for example). Non-payroll expenses cannot exceed 25% of the total.

Eligible businesses includes corporations and LLCs, but also includes non-profit organizations, sole proprietors, and those who are self-employed or independent contractors. Many businesses can apply for the loan starting on April 3, 2020, and Independent Contractors can apply starting April 10. The program will close once the $349 Billion is gone. Don’t delay!

Here is the required application for the Paycheck Protection Program. Your bank may have additional paperwork for the loan. The SBA is paying all the application or service fees for the loan, so it costs you nothing. Amazingly, the Federal government is pushing cash so fast into the economy that neither banks nor state unemployment departments are prepared. In fact, the final rules from the SBA are not expected until around April 13. So, it’s grab the cash now and figure out the details later! I guess desperate times call for desperate measures.

Musicians, you are a business and you have absolutely been impacted by the Coronavirus, resulting in loss of income. If eligible, take the time to apply for this benefit. It’s a two page application with two pages of instructions which could replace two months of income for you and your employees.

Employee Retention Credit

If you own a business with multiple employees, such as a music school, band, etc., you should also know about the Employee Retention Credit. It’s another part of the CARES Act. To qualify, you must have either been temporarily closed down due to local regulations or have your gross receipts fall by 50% this quarter versus last year. For business owners with lower income or part time workers, it may be better to use the Employee Retention Credit rather than the PPP. You have to choose one or the other: if you take the PPP you are ineligible for the Employee Retention Credit.

The Employee Retention Credit is for 50% of income per employee up to $10,000 a year. So the maximum credit is $5,000 per employee for 2020. Now if your employees will make less than $5,000 in 2.5 months but more than $10,000 for the rest of the year, you would be better off with the ERC versus the PPP. The ERC is not available to self-employed individuals and will apply to income from March 12, 2020 to the end of the year. Full details and eligiblity here on the IRS Website.

I know these are difficult times and musicians are hurting. Many lenders, mortgage companies, and credit cards, are allowing people to delay their payments. There is federal aid coming and expanded unemployment benefits. If you have questions on the Payroll Protection Program for musicians, please feel free to send me an email.

Unemployment Benefits for Musicians

Unemployment Benefits for Musicians

With the Coronavirus causing cancellations of concerts, schools, church services, and other gigs, many of you are wondering about unemployment benefits for musicians. Are you eligible?

Unemployment insurance is provided at the state level and each state has its own eligibility, rules, and application process. To find the link for your own state, visit the US Department of Labor website here. This site includes any new rules or benefits offered because of the COVID-19 crisis.

If you are a W-2 musician (an “employee”) you are generally eligible for benefits if you have lost work due to Coronavirus. You don’t have to be a full-time employee or work exclusively for just one employer. Even if your lay-off is temporary, and you are not permanently “fired”, you may still be eligible for benefits. Please check your state rules and verify before assuming you aren’t eligible. And know that filing for benefits doesn’t cost your employer. They already paid premiums to the state for this insurance.

Here in Texas, the state will need your past five quarters of earnings and will base your benefit on the first 4 of 5 quarters. Benefits range from $69 to $521 a week, depending on your past wages. You should apply as soon as possible to avoid missing any weeks of benefits. There is often a lag of three or so weeks until you receive your first payment.

Self-Employed?

The bigger challenge for musicians is that many of us are 1099 or “Independent Contractors”. If you are self-employed, you are generally not going to be eligible for unemployment benefits. Minnesota offers benefits to the self-employed, but only if you paid into the program in advance. So, you need to check your own state rules to verify.

This brings up an important point. Many ensembles incorrectly classify musicians as Independent Contractors, when they should be Employees. Some musicians point out that they have more tax deductions as an Independent Contractor. That’s true. However, you miss out on two big advantages as a Employee. First is Unemployment Benefits, which you don’t get as a 1099. Second is that an employer has to pay 7.65% towards your Social Security and Medicare taxes. This cuts in half the Self-Employment tax that you would pay as a 1099. That’s like a 7.65% raise by going from 1099 to W-2.

The Lancaster Symphony Case set a legal precedent that orchestra musicians are employees. It’s time for orchestras to stop classifying musicians as Independent Contractors. That would allow more Unemployment Benefits for working musicians.

Stay healthy. I hope this will pass soon so we can all get back to performing, teaching, and sharing our love of music. Don’t be afraid to ask about Unemployment Benefits for Musicians. Yes, it can be a pain to apply and meet all the ongoing eligibility requirements. But if you are out of work, don’t delay in getting the benefits you deserve.

UPDATE April 3, 2020: The CARES Act passed last week is expanding Federal unemployment coverage to include self-employed individuals. While this benefit is supposedly available immediately, the states are still working on how to actually do this. Here in Texas, there are presently no instructions or process to apply for unemployment benefits for self-employed, “gig economy” workers. But this should be available soon. We will have to see how they will calculate your income and benefits, it will be interesting!

Your Goals for 2019

Welcome to 2019! A new year brings a fresh chance to accomplish your goals. No one becomes a musician for the paycheck, but at the end of the day, musicians have the same financial goals as most people: to become a home owner, pay off your student loans, get married, raise a family, plan for your retirement, or support your favorite charity. We can help you achieve these goals or others. The purpose of our financial planning is not to own a bunch of stocks and bonds or get a nice tax break, it is about finding an effective, efficient, and logical way to help you accomplish your life’s goals.

We love when someone has a concrete, specific objective. When you truly embrace an important goal, there is ample reason to find the discipline for whatever steps are needed to achieve your objectives. That’s why you spent all those years honing your skills as a musician.

I can tell you all about the benefits of a Roth IRA or a 529 College Savings Plan, but if that doesn’t fit into your needs, all my words are worthless. The “why” has to be there first, before we can get excited about “how” we are going to do it. If you have goals that you want to accomplish in 2019 – or 2020 or 2029 – I’d like to invite you to join us and become a client of Good Life Wealth Management today. We serve smart investors who value personalized advice centered on their goals.

I’d welcome the opportunity to share our approach and allow you to consider whether it would be a good fit for you and your family. 

  • Our process focuses on planning first – we want to fully understand your goals and needs before we make any kind of recommendation. You would think this would be universal, but believe me, most of the financial industry has a product that they want to sell you before they have even met you. (Read our 13 Guiding Beliefs.)
  • We have no investment minimums. Younger musicians have financial goals and complex, competing objectives (hello, student loans!) even if they haven’t started investing or only have a small balance in an IRA. We think helping young professionals build a strong financial foundation is important work. This is our Wealth Builder Program.
  • I’ve been a financial planner for 15 years and hold the Certified Financial Planner and Chartered Financial Analyst designations. Professional expertise and deep investment experience should be a given if you’re seeking financial advice. (More about Scott‘s background as a financial planner and musician.)
  • Having your own plan means that you have taken an objective measure of where you are today, that we have created specific goals and objectives, and that we identify and implement steps to achieve those goals. While this is often savings and investment based, we’re going to evaluate your whole financial picture, from taxes and employee benefits to estate planning and life insurance. Bringing in a professional delivers accountability to a plan and protects you from what you don’t know you don’t know. (Financial Planning Services)
  • We are a Fiduciary, legally required to place client interests ahead of our own. Our fees are easy to understand and transparent. We aim to eliminate conflicts of interest wherever possible and if not possible, reduce and disclose. I invest in our Growth 70/30 model right along with our clients; if I thought there was a better way to invest, we would do that instead. (Skin in the Game)

Successful musicians seek out the help and expertise of others. They surround themselves with knowledgeable professionals, not to abdicate responsibility, but to improve their understanding through asking the right questions. I became a financial planner to help others achieve their goals, and I love my job. For me, it is endlessly interesting and personally rewarding, especially when I get to work with a fellow musician.

You could make a New Year’s resolution about your finances, but I genuinely believe you are more like to have a good outcome if you hire the right advisor who understands a musician’s career and can help guide your journey. If you want 2019 to be the year when you turned your dreams into goals and a plan, then let’s talk about how we can work together.

Tax Bill Passes; Strategies for Musicians

Two weeks ago, we posted how musicians would lose their tax deductions under the proposed tax bill in the Senate. Let me again state that this applies to musicians who take itemized deductions on Schedule A against their W-2 income. For 1099 income or self-employment income reported on Schedule C, there will be little or no change in claiming those business expenses.

While there have been many last minute changes to the version passed in the Senate, I am sad to report that all of concerns which I have for my clients (and myself) have made it into the final version passed at 1:51 AM in Washington. The last step will be for a committee to reconcile the House and Senate bills into a final version to be signed by President Trump. They will begin work on the process on Monday.

The bill applies to your 2018 tax year, so your 2017 tax return (due April 15, 2018) is still under the old rules. Here is an overview of significant changes which will be relevant to musicians as you prepare your taxes.

  1. The Senate version keeps our current seven bracket structure, but lowers everyone’s marginal tax rate by a percent or two. The current brackets of 10, 15, 25, 28, 33, 35, and 39.6 percent will become 10, 12, 22, 24, 32, 34, and 38.5 percent. Additionally, the income levels for these brackets are increased at the high end. The income brackets will be linked to inflation, but the IRS will use chained CPI, which will likely have a lower growth rate than the current method of calculating CPI. Most significantly, the lower tax brackets have a sunset after 2025 at which time, the higher rates return. (Note that the corporate tax reduction from 35% to 20% is permanent. That will have to be a conversation for another day!)
  2. The Standard Deduction will increase from $6,350 single ($12,700 married) to $12,000 single ($24,000 married). However, the personal exemption of $4,050 is eliminated. So the net change is only from $10,400 to $12,000 single, or $20,800 to $24,000 for a married couple. Additionally, since the personal exemption applies to dependents, a family of four would actually see their standard deduction and personal exemptions drop from $28,900 to $24,000. Offsetting this is the child tax credit, which will increase from $1,000 to $2,000 in the Senate bill. The additional $1,000 increase under the Senate plan will be non-refundable, meaning it can reduce your tax liability to zero but will not be paid back.
  3. With a higher standard deduction, it will be more difficult for musicians to have enough itemized deductions to claim a tax deduction. As a reminder, itemized deductions currently include state and local income, sales, and property taxes, mortgage interest, charitable donations, and miscellaneous itemized deductions such as unreimbursed employee expenses.
  4. The Senate Bill eliminates the tax deduction for state and local income and sales taxes and caps the property tax deduction to $10,000. Starting in 2018, you will no longer be able to deduct home equity loans or interest on a second home. Another change: in order to receive the capital gains exclusion on the sale of your home, you must have had the house serve as your primary residence for 5 of the past 8 years. (An increase from 2 of the past 5 years.)
  5. Also eliminated are the Miscellaneous Itemized Deductions. This is on page 83 of the Senate Bill. This category includes unreimbursed employee expenses which are very significant to many musicians. You will no longer be able to claim the following as itemized deductions: tools and supplies, required clothing, home office expenses, mileage and travel, union dues or professional organization dues. Again, this applies to your expenses in generating W-2 income and not to 1099 income. It is essential to know how you are paid.
  6. The Senate version increased the above-the-line deduction for teacher classroom expenses from $250 to $500. This was eliminated in the House bill, to universal outrage. You do not have to itemize to take this deduction. Let’s hope this makes it into the final bill.
  7. There are many other changes to Alternative Minimum Tax, the Estate Tax, the individual mandate of the ACA, pass-through entities, and allowing 529 Plans to pay for private and religious schools for K-12. The student loan interest deduction is eliminated. We’re aware of these changes and others and are happy to discuss those on an individual basis.

While I cannot provide personal tax advice to non-clients, I can make some general recommendations you may want to consider for your own tax situation.

If you currently itemize, you may want to accelerate as many of your deductions into 2017. Before December 31, consider:

  • Paying your property taxes. Next year, you will be capped to $10,000. But even if you are below $10,000, only your itemized deductions above $24,000 will net you any additional tax savings versus the standard deduction. Will you have more than $24,000 in itemized deductions in 2018? It will be more difficult under the new rules.
  • If you have unreimbursed employee expenses, you might want to make those purchases in 2017: concert clothes, sheet music, tools and supplies, or musical instruments. Buy your plane tickets now for 2018 travel. Pay your dues and subscriptions. Remember that to count as a 2017 expense, you just have to put these on a credit card by December 31.
  • Making your charitable donations. If you are over age 70 1/2, you really have to look into doing a Qualified Charitable Donation from your IRA rather than trying to deduct a charitable donation.
  • Reviewing your sources of 1099 /  Schedule C income. If you have both W-2 and 1099 income, you will want to tie your expenses to your Schedule C business expenses instead of Schedule A itemized deductions starting in 2018. If you are primarily W-2, having some 1099 gigs may allow you to claim expenses which will otherwise be lost.

As a musician and the spouse of a musician, I have spent hundreds of hours in keeping receipts and detailed records of expenses which will no longer be tax deductible for us. It’s frustrating, and I believe our taxes will be higher in 2018 as a result. Being a musician is already a challenging way to make a living and this change will complicate things further for many of us.

Musicians want financial security and we can help you achieve those goals. If you’re ready to have a financial plan that is specific to your life and needs, please contact me and we can discuss how we work with musicians.

As an aside, I’d like to applaud Senator Bob Corker who was the sole Republican to vote against the Bill, because it will increase deficits by $1 trillion over the next decade. Corker – who is retiring and not running for re-election – was the only Senator who did not vote along party lines. The Bill passed 51-49. Interesting times, indeed.

Reducing the Costs of Healthcare

We may soon see the repeal or defunding of the Affordable Care Act (ACA or “Obamacare”). No matter your political perspective, there is no doubt that rising costs of health care are a significant financial problem for many working musicians, especially those who rely on an individual health insurance plan to cover their family. These spiraling costs threaten our ability to save and accumulate, as well as to secure our retirement. In our financial plans, we calculate a higher rate of inflation for health care costs than other living expenses, but cost increases for those using individual plans on the ACA exchange have grown much faster than the overall 5-6% rate nationwide.

As a society, we are going to need to curb these costs while making sure all Americans have access to care. What concerns me today is that the new administration is pushing forward with the repeal while replacement plans remain vague and uncertain. We know what they are against, but what is the best solution?

Here’s a Financial Planner’s perspective on how America might reduce the cost of healthcare. My hope is that we can have a more educated and thoughtful conversation about this complex subject.

1) Covering Pre-existing Conditions
Requiring insurance companies to accept new participants and cover their “pre-existing conditions” is a fair and compassionate move from a consumer protection standpoint. But it’s a major change to the insurance model.

It means that insurers have to worry about self-selection bias, where people who are sick will sign up, but people who are healthy decide to forgo coverage. The more insurance premiums go up, the more self-selection occurs. That’s why the ACA included a provision to penalize people who do not have coverage, to create a financial incentive for everyone to participate.

The penalty is 2.5% of your income, with a floor of $695 and a ceiling of $2,085 per adult for 2016 and 2017. The ACA forces a painful decision between paying a penalty versus spending thousands more on coverage that has a high deductible and may offer little benefit unless you have a catastrophic illness or injury.

Unfortunately, requiring insurance companies to accept pre-existing conditions is like requiring auto insurers to cover your car after you’ve already had an accident. To afford covering pre-existing conditions, we need all Americans to participate in health insurance and not let healthy folks opt out. That’s why covering pre-existing conditions combined with rising costs is causing self-selection: people who are healthy are choosing to forgo coverage or cannot afford it.

Similarly, allowing young adults to stay on their parent’s coverage through age 26 under the ACA sounded like a great idea to keep those children insured. Unfortunately, it removed healthy young people from the risk pool, which made costs more expensive for everyone else who needed coverage through the exchange.

In this regards, the ACA coverage of pre-existing conditions has increased costs more than anticipated. Maybe the best solution would be a single-payer, government health plan, like in many European countries. Our tendency is to reject these plans out of hand, but maybe we should look more carefully at their costs, benefits, and features. We cannot afford to think we have nothing to learn from the rest of developed world.

2) Cost of insurance versus healthcare
Insurance companies have a mandate legally requiring a large, fixed percentage of their premiums go directly to medical costs and not to overhead. Insurance premiums have not been rising because of greedy insurance companies making profits. In fact, the opposite, companies are leaving the ACA exchange after losing tens or hundreds of millions of dollars. Insurance costs are going up because the costs of healthcare are skyrocketing.

What we need to be doing is looking at ways to reduce healthcare costs; insurance just passes through those costs to consumers. The US spends 50% to 100% more than other developed countries per person. We spent 17.8% of GDP on healthcare in 2015, the highest in the world. Universal healthcare programs in Europe, Canada, and elsewhere costs much less, no more than 10-11% of GDP.

Why do we spend so much on healthcare in the US?

  • US patients may pay 3-4 times as much for medicines than in Mexico or Canada. This is frequently for drugs that were invented or manufactured in the US. We need to examine why the free market isn’t pushing those costs down.
  • The threat of lawsuits, and magnitude of awards, hurts Americans two ways. Directly, the cost of malpractice insurance is ultimately passed on to consumers. Indirectly, doctors may order additional tests, procedures, or medications that may be unnecessary or more costly than other alternatives, because of the threat of malpractice, rather than medical need.
  • To some extent, private insurance subsidizes hospitals who receive low reimbursements from Medicare and from uninsured patients who do not pay. Your insurance company is likely paying a hospital much more than they would receive from Medicare. Many public hospitals, like Parkland in Dallas, serve the 15% of Americans who are uninsured. And when the uninsured have a $50,000 hospital bill, that amount will seldom be collected.
  • Patients often do not have any incentive to reduce costs or share in expenses. Once your deductible and out-of-pocket is met, for example, the patient’s cost of a $15,000 procedure is the same as a $50,000 procedure. Which procedure is a doctor or hospital more likely to recommend if you have good insurance?
  • We spend a significant amount of our Medicare and Medicaid budget on caring for people in their last 3-6 months. Dying is a natural process, but modern medicine often assumes we should prolong life for as long as possible regardless of the quality of that life. I am glad that we do not tie end-of-life decisions to cost, but perhaps it would be both sensible and compassionate to focus on comfort rather heroic procedures for an elderly patient with significant health issues. Being hooked up to machines and tubes may keep you alive, but it is not the same as living.
  • Many health issues such as heart disease, blood pressure, and diabetes are exacerbated by the obesity problem in the US. An education on smarter food choices and more exercise should start at an early age. Prevention is less expensive.

We cannot expect the cost of health insurance to decrease unless we address the cost of healthcare. We need to encourage everyone to have health insurance coverage, because the very nature of insurance is spreading out risks so that the pooled money covers claims for those who need it. We are keeping our fingers crossed that whatever plan Washington develops, more people can be insured and that we look long-term to keep healthcare costs better under control. For our musician clients, we will continue to help you sort through your options, but know that having access to a group plan through an employer or spouse, continues to be your best bet for coverage.

7 Financial Tips for Professional Musicians

Just like a career in music, achieving prosperity is the product of years of planning, deliberate work, and making sound choices. Being a professional musician is different from other traditional careers and can pose a unique set of financial challenges. Here are seven ways professional musicians can improve their financial future:

  1. Think like an entrepreneur. You are dedicated to your art; be sure to not neglect your business, because you are indeed a business. What would a business owner do? Develop multiple sources of revenue (different gigs, styles, teaching, administration, etc.) to diversify your income stream and have the flexibility to change when opportunities arise or go away. Entrepreneurs don’t do everything themselves or try to know everything. They enlist professionals – financial planners, CPAs, attorneys – to make sure they are doing things right.
  2. Set Goals. The myth is that all musicians were born with a talent. The reality is that we’ve spent thousands of hours over many decades practicing, learning from masters (and colleagues), and competing to reach the highest levels of performance. If musicians spent even a small fraction of that energy on setting financial goals, taking steps to save, and educating themselves about money, they would be incredibly successful. Professional musicians are as driven and dedicated as Olympic athletes or chess champions. If we can apply that same process and focus to financial planning, the sky’s the limit. It doesn’t matter if you change your goals later on, the important thing is to get started today and not wait another year to start saving and planning for your future.
  3. Emergency Fund. The common rule of thumb is to keep 3-6 months of living expenses available in cash for emergencies. For musicians, I’d extend this to 6-12 months if you can. Your income can be highly variable, and if you can’t work, your income goes to zero. Read my top tips on How to Save More as a Musician.
  4. Be proactive to reduce taxes. The more money you keep, the more you have earned. Be organized with your receipts and records and aim to learn and improve your tax situation each year. Don’t wait until April to think about your deductions. If you have a dedicated practice room, be sure to use the home office deduction. Read The Musicians Guide to Mileage and Deducting Concert Clothes. If you have both salary (W-2) and self-employment (1099) income, try to deduct general expenses against your self-employment income on Schedule C. Take every opportunity to reduce your taxes. This takes some time, effort, and organization, but is well worth the effort.
  5. Think in terms of Assets and Liabilities. Grow your assets (investments, retirement accounts, cash, real estate) and have a plan to eliminate your liabilities (credit cards, student loans, mortgages, etc.). Aim to be debt free before retirement and get that stress out of your life. The earlier you start a retirement plan, the more you will have at retirement age. Read The Musician’s Guide to Choosing a Retirement Plan.
  6. Don’t skip insurance. I know a lot of musicians who are uninsured or under-insured. Don’t forgo health insurance at any age. Make sure you have coverage for home and auto that will actually protect you. If you can get a disability policy, make sure it covers “own occupation” (being a musician) and not “any occupation”. If other members of your family are dependent on your income, you need a life insurance policy. I recommend term insurance for 95% of the people I meet. Learn about Umbrella Policies.
  7. Be a good colleague. Working musicians know that their livelihood depends not just on their skills, but on their relationships with other musicians. Being easy to work with is essential to getting called back, being recommended for other gigs, being granted tenure, and maybe even winning a job or audition. A positive attitude is a tremendous asset in a field which is competitive, high pressure, and full of challenges. Be someone that you’d want to be around. Optimists are going to be more successful as musicians, as well as with their finances.

If you want to discuss what steps to take with your finances, you don’t have to go it alone. Give me a call and let’s talk about what you want to achieve.

Emergency Assistance for Musicians

Today I am writing something which I hope none of you will ever need: financial assistance for musicians who experience an emergency. The most common need is for medical bills, which can easily run into the tens or even hundreds of thousands today for an accident, injury, or serious disease. The phrase “unexpected illness” is redundant – no one ever expects that they will be the one who experiences a life-threatening illness or injury. When these cause a financial crisis, there are three charitable organizations whose mission is specifically to help musicians in their time of need.

Even if this doesn’t apply to you, please read this, and keep these organizations in mind for your friends and colleagues. Every year, I hear about someone I know who plays in local groups, or who I went to school with, who is experiencing a financial emergency. Please let them know about these resources.

Musicians Foundation  http://www.musiciansfoundation.org/

Since 1914, the Musicians Foundation has provided emergency financial assistance for medical bills and living expenses for musicians who are unable to work due to emergency circumstances. To be eligible, you must have been a professional musician for at least 5 years and reside in the United States. To apply, they have a 4-page application and require tax documents, a letter, professional biography, and medical documentation.

Grammy.org MusiCares Emergency Financial Assistance  https://www.grammy.org/musicares/client-services/emergency-financial-assistance

Grammy’s Emergency Financial Assistance Program provides financial support for musicians in times of financial, medical, and personal crises. This includes hospital and medical bills, addiction recovery treatment, psychotherapy, Alzheimer’s care, as well as living expenses such as rent and utilities. To qualify, you need to document employment as a musician for at least five years and on six commercially released recordings or videos.

Sweet Relief Musicians Fund  http://sweetrelief.org/

Sweet Relief helps career musicians in the US and Canada with financial emergencies due to illness, disability, or age-related problems. Grants are provided to musicians who have regular public performances or performed or wrote music for at least three widely distributed recordings.

All three organizations accept and rely on donations to provide this financial support to musicians in need. So, if you are able, please consider making a donation on behalf of other musicians.

If you know a musician experiencing a health care and financial crisis, the last thing they may be thinking about is filling out forms, writing letters, and submitting financial paperwork. I will help any eligible musician complete these applications at no cost whatsoever. It’s a few hours of my time, but hopefully this can help them and their family in their moment of need.

The exorbitant cost of health insurance has been a frequent conversation this year. This month, I spoke with a healthy, young musician who is spending $450 a month for insurance, and a family of three with a premium over $1,200. As awful as that is, going without insurance is reckless. It is rolling the dice and hoping that you never get ill or have an accident. Please do not go without health insurance – you are risking everything. For moderate and low income families, make sure to investigate tax credits for insurance purchased through the Exchange, under the Affordable Care Act.

Link: IRS Facts about the Premium Tax Credit

How to Save More as a Musician

For many musicians, saving is a challenge. You may have multiple employers and gigs, but no guaranteed salary to create a consistent budget around. You may not know what work you will have in 6 to 12 months, let alone how much you will make or can save. Things can be much more unpredictable than for someone in a traditional job.

As a musician, you might not have a 401(k) with a company match or other benefits. Instead, you need to think like an entrepreneur and become responsible for creating your own savings plans.

Saving and investing is the path to financial independence. Even if you don’t want to retire, you should still aim for financial independence, so you can work because you want to and not because you have to. Saving isn’t just for retirement planning, it’s developing a plan for financial security to free you from worry today.

How can we make saving easier? What steps make you more likely to succeed?

1) Put your saving on autopilot through automatic monthly contributions. Whether it is establishing an emergency fund, contributing to an IRA, or creating a 529 college savings plan, making it automatic is the way to go.

2) Emergency Fund Triggers. Hopefully you already have an emergency fund with at least 3-6 months of living expenses. I know that musicians often need to tap into funds during the summer when their income drops with fewer gigs and students. Coordinate your saving with an emergency fund target: if your target is $12,000, anytime your account exceeds $12,500, sweep $500 from your emergency fund into an investment account. When you have busy months, you will have funds to invest more frequently.

Having trouble getting your emergency fund started? If you contribute to a Roth IRA, you can always access your contributions (but not any earnings), without tax or penalty. Hopefully, you will not have any emergencies and can leave the Roth account intact.

3) Set goals. If you don’t have a finish line – a target amount for your nest egg – it’s hard to feel any sense of urgency to saving. When I was 30, I knew where I wanted to be at 50, which also meant I could determine where I needed to be at 35, 40, and 45. Those specific goals have helped me stay on track through the years. Without long-term goals, short-term actions often lack direction and a clear purpose.

4) Think big, not small. How many times have you read that you can fund your IRA by giving up your daily coffee fix. Forget that! If you get the big decisions right, the small stuff takes care of itself. Instead, be very smart, calculating, and objective on two essential things: housing and cars. These are the biggest expenses for almost everyone, and we have tremendous discretion in choosing how much we spend on these two categories.

If you want to jump start your saving, take a close look at all your recurring monthly costs: insurance, utilities, cell phone, cable TV, and memberships. Comparison shop, look for savings, and drop items you don’t use or won’t miss.

5) Focus on maximum saving. There is an oft-repeated rule of thumb that you should save 10% of your income. I am guilty of saying this one, too, especially as a “realistic” goal for new savers. However, there is nothing magical about the number 10%, and there is no guarantee that if you start saving 10% today that you will have enough money to accomplish all your financial goals. Try to contribute the maximum to any employer retirement plans, which for a 403(b) or 401(k) means $18,000 or $24,000 if over age 50. And if you are also eligible for an IRA, fund a Traditional, Roth, or Backdoor Roth IRA. If you have self-employment or 1099 income, you may also be eligible for a SEP-IRA.

If it helps you to increase your saving, then let’s calculate each need separately and contribute to:

  • Employer retirement accounts
  • IRAs
  • Health Savings Accounts
  • 529 College Savings Plans
  • Term life insurance policy
  • Taxable brokerage account
  • Savings for a first or second home down payment
  • Savings for your next car, so you can pay cash when you need to replace your current vehicle

In other words, you have lots of reasons, needs, and ways to save!

Link: If your Adjusted Gross Income is below $30,750 (single) or $61,500 (married), you may be eligible for The Saver’s Tax Credit when you contribute to an IRA or other retirement account.

I know a lot of millionaires who were great savers and invested in generic, plain mutual funds. But I have yet to meet anyone who has turned $5,000 into a million through their brilliant investing. Investing decisions matter, but you are likely to reach your goals faster if you can figure out how to save 50% more rather than spending your time trying to increase your returns by 50%, because it is not possible over any meaningful measure of time.

Saving is the foundation of financial planning. It’s the first step which leads to many other good things. Unfortunately, it is also the most difficult step for most of us! But if you spent years practicing an instrument and studying in a conservatory, you already have the discipline, organization, and drive to be successful. It’s just a matter of applying that same process and curiosity to your finances!

Is Your Car Eligible for a $7,500 Tax Credit?

As a free-lance musician, I can think of many times when I have spent three hours or more in the car, round-trip, for a two and a half hour rehearsal. In most cases, our pay for a gig is fixed, so the only way to take home more money is to reduce our expenses.

If you are in the market for a fuel-efficient vehicle, you may want to know about a tax credit available for the purchase an electric or plug-in hybrid vehicle. Worth up to $7,500, the credit is not a tax deduction from your income, but a dollar for dollar reduction in your federal income tax liability. In other words, if your tax bill was $19,000 and you have a $7,500 credit, you will pay only $11,500 and get the rest back.

This credit has been available since 2010, but in the last two years a significant number of new car models have become eligible for the tax credit. If you drive a lot of miles, these cars may be worth a look.

The credit includes 100% electric vehicles like the Tesla Model S or the Nissan Leaf, and it applies to the newer plug-in hybrid models, including the BMW i3, Chevrolet Volt, Ford C-Max Energi, Hyundai Sonata Plug-In Hybrid, and others. The credit does not apply to all hybrid vehicles, only those with plug-in technology. While the plug-in cars may be more expensive than regular hybrids, they are often less expensive once you factor in the tax credit.

The amount of the credit varies depending on the battery in the car, and may be less than $7,500. The credit is phased out for each manufacturer after they hit 200,000 eligible vehicles sold, with the credit falling to 50% and then to 25%. So, for those 400,000 people who put down a deposit on the Tesla Model 3, most will not be getting the full $7,500 tax credit. Only purchases of new vehicles – not used – are eligible for the credit.

The program is under Internal Revenue Code 30D; you can find full information on the IRS website here. An easier-to-read primer on the program is available at www.fueleconomy.gov.

Some states also offer tax credits or vouchers for the purchase of a plug-in hybrid or electric vehicle. Unfortunately, Texas is not one of those states! You can search for your state’s programs on the US Department of Energy website, the Alternative Fuels Data Center.

Do you have a plug-in hybrid or electric vehicle? Send me a note and tell me how you like it.

Are orchestra musicians independent contractors?

Are Orchestra Musicians Independent Contractors?

Are orchestra musicians independent contractors? Landmark court case says  no, musicians are employees.

In April 2016, the U.S. Court of Appeals ruled that the musicians of the Lancaster Symphony are employees. The orchestra’s management argued that musicians were independent contractors with no right to unionize. The musicians eventually prevailed after an eight year legal fight.

It is odd that you can be an employee in one orchestra and yet do the exact same thing for another orchestra and be considered an independent contractor. It doesn’t matter if an orchestra is full-time or per service, the work is the same. Part-time has nothing to do with whether or not someone is an employee.

IRS Definition

Unfortunately, the IRS does not give a precise rule to decide what makes someone an independent contractor. Rather, they have a set of guidelines. An employer will always prefer to have independent contractors. Orchestras say musicians are independent contractors because we have to provide our own instruments. But, the IRS says the key determinant is actually this:

You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.

Link: https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-defined

Every conductor believes that their job is to control “what will be done and how it will be done.” Musicians are told what to do, when, what to wear, and how to act. You are not an independent contractor.

If an employer really had any doubt as to a musicians’ status, they could file Form SS-8: Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. The IRS will review the facts in the case and make a decision. Since employers are not required to submit this form, many simply make the choice on their own.

Employee vs. Independent Contractor

There are a couple of differences between being an independent contractor versus an employee.

  • Independent contractors receive a 1099. Employees receive a W-2 at the end of the year. If you receive a 1099, you report your income and expenses on Schedule C.
  • Independent contractors pay Self-Employment Tax, which means paying both halves of the Social Security and Medicare payroll taxes. For employees, your employer pays one-half of the tax (7.65%), and you pay the other half. Even a per service orchestra likely has several hundred thousand dollars in payroll each year, so 7.65% is a significant expense.
  • Employees have a right to unionize.
  • Musicians who are employees might have a right to unemployment and worker’s comp benefits. Also, employers pay unemployment taxes for employees, but not for independent contractors.

As a musician, you are better off being an employee. The Lancaster Symphony didn’t like that the National Labor Relations Board determined that their musicians were employees. So, they spent eight years in court trying to overturn the NLRB decision and were unsuccessful.

Harvey Mars Interview

I play in a per service orchestra where musicians are considered independent contractors. What does this ruling means to musicians who are independent contractors?

Harvey Mars, Esq. is the counsel for AFM Local 802 in New York and an expert in employment law for professional musicians. Mr. Mars recently wrote about the Lancaster ruling here. (He is also, like me, an Oberlin trombone graduate!) Here’s our conversation:

FFM: Is the Lancaster Symphony ruling grounds to compel other per service orchestras to classify musicians as employees rather than independent contractors?

Mars: Yes, the ruling does establish a precedent and will be considered persuasive authority.

FFM: Do you foresee orchestras making this change voluntarily, or would the players or union need to pursue this on a case by case basis?

Mars: I believe this ruling may change some, but not all employer practices.

FFM: What are the benefits for musicians to be employees rather than independent contractors? (Ability to unionize, unemployment benefits, employment taxes?)

Mars: In addition to what you have, take advantage of statutes that only benefit  employees, such as civil rights statutes.  In New York we have City Laws that only apply to employees covering paid leave time.

The reality is that most orchestra musicians have always been closer to the definition of employee than independent contractor. But no one had ever challenged that status in court. Are orchestra musicians independent contractors? Thanks to the Lancaster Symphony ruling, we have now an answer. Similar per service orchestras should take note!