Beware of the Tax Aspects of Some Key COVID-19 Programs

Maicher CPA Pllc provides tax preparation services to help businesses and individuals succeed.  COVID-19 has spawned several government programs to relieve financial hardship.  While these programs have been essential for those hit worse by the pandemic, these programs each have their own unique tax consequences.  Maicher’s professionals are staying on top of these developments and can help guide you in reducing unpleasant surprises come tax time. 

What are some of the key programs and their tax consequences? 

  1. The Paycheck Protection Program (PPP).  The PPP is an SBA-backed loan intended to provide cash flow assistance for businesses struggling with the impact of COVID for at least eight weeks.  Depending on the circumstances, the loan is forgivable provided it’s used for business expenses, and predominantly wages.  But beware: while there is no tax on the forgiven loan, the IRS has concluded (at least for now) that a business expense is not deductible if it’s counted toward the forgiveness of the loan.   This means you will lose out on some deductions which would have otherwise reduced taxable income.
  2. The Economic Injury Disaster Loan (EIDL).   EIDL is an SBA loan to address the hardships of businesses due to COVID.  The loan program also includes a straight-out grant (rather than a loan) of up to $10,000.  Since it is a grant, the IRS will likely consider it taxable income.  However, the IRS has not definitively decided this issue and it remains somewhat in flux. 
  3. Stimulus Payments.  Good news here!   According to the IRS: stimulus payments are not subject to taxation, stimulus payments do not reduce tax refunds and they will not impact the taxes paid next year.
  4. Unemployment Benefits.  Unfortunately, unemployment benefits get different tax treatment than stimulus payments.  In short, unemployment benefits are subject to state and federal taxes (though free from Medicare and social security taxes).  You can file a form to have taxes deducted from each benefit payment. If you don’t elect this option, then making estimated payments during the year will likely cut expenses at tax filing.   

Conclusion:   COVID-19 and its relief programs are raising new tax issues, which are still somewhat in flux.  Maicher is well-informed of these evolving issues and can help you minimize taxes and reduce unpleasant surprises at tax time.  Contact Maicher today for an appointment to review your 2020 tax plan.

 

Sources:
“11 Tax Tips For The Unemployed During The COVID-19 Pandemic,” Forbes (August 28, 2020).
IRS Publication – “Tax Benefits for Education: Information Center,” (June 5, 2020).
“Tax-Filing Tips for College Students,” US News & World Report (June 4, 2020).
IRS Publication (Topic No. 456) – “Student Loan Interest Deduction,” (May 28, 2020).