Many individuals and businesses received some kind of government assistance during the 2020 Pandemic through provision of the C.A.R.E.S. Act. Whether the aid was in the form of unemployment subsidies, stimulus checks, EIDL grants, PPP loans, or private grants, there are a lot of questions about what happens now? Is unemployment taxable? Are the Stimulus payments taxable? Do you have to pay back the loans or are they being forgiven?

PPP Loans and EIDL grants are already being forgiven by lenders. The PPP loans are being automatically forgiven if 60% of the amount borrowed was used for payroll costs and the amount borrowed was under $150,000. If the amount borrowed was $150,000, it will still be forgiven if 60% of loan was used for payroll costs, but a “Paycheck Protection Program Loan Forgiveness Application – SBA Form 3508S” needs to be completed. Those applications can be obtained from your lender. If a second PPP loan was obtained for $150,000, then it too can be forgiven, but a separate “Loan Forgiveness Application” needs to be completed.

Neither an EIDL grant nor a PPP Loan is taxable and you may be eligible for Employee Retention tax credits. However, grants received from cities, counties, states, nonprofits or other private entities are taxable.

Stimulus Checks (Economic Impact Payments) are not taxable. You will be asked the amount you received on your taxes as reported on your Notice 1444, but it will not affect your tax liability. If, however, you did not receive a Stimulus Check and were due one, you may be able to claim a tax credit on your 2020 Personal Income Tax Return.

State Unemployment Benefits have always been taxable and the $600 or $300 per week additional payments from the Federal Government is also subject to Federal Income Tax.

These are some simple answers to some complicated questions and there are many exceptions and exemptions when you are dealing with your business’ income tax. It would be best to enlist a tax professional if your situation is not straight-forward.

2020 was a year of scrambling and enlisting stopgap solutions and quick pivots to keep the doors open on many businesses. To minimize future panic, AuerCPA recommends having a financial strategy in place. This is more than just goals or dreams. A financial strategy identifies a goal or target, and then outlines the way to achieve those goals by having clean books, adjusting and analyzing job costs, identifying profitable market segments, or restructuring cash flow budgets.

AuerCPA provides Compliance Services and Business Strategies so that you can Stress Less and Grow More.