Is COVID-19 Financial Relief Taxable?
Individuals and business owners have been provided with a wide array of financial assistance during the coronavirus pandemic. Many are wondering whether the relief is subject to tax. Below are some answers.
Economic Impact Payments (Stimulus Payments)
- Federal: The payments are not taxable, and they will not reduce a taxpayer’s refund or increase the amount they owe on their 2020 or 2021 tax returns. The IRS has provided several FAQs about reconciling the economic impact payment on your 2020 federal tax return.
- New Jersey: According to the New Jersey Division of Taxation, economic impact payments are not subject to income tax in New Jersey and should not be reported on your New Jersey income tax return.
- Federal: The new COVID-19 relief bill, the American Rescue Plan, signed by President Biden on March 11 waives federal taxes on an individual’s first $10,200 of unemployment benefits collected last year. Married couples who file a joint tax return wouldn’t be taxed on the first $20,400 of unemployment income. The federal tax break applies to individuals and married couples who made less than $150,000 in adjusted gross income in 2020.
- New Jersey: Unemployment compensation received from the State of New Jersey, as well as the additional $600 per week provided as part of the CARES Act, is not taxable on your New Jersey tax return.
Forgiven Paycheck Protection Program (PPP) Loans
- Federal: Thanks to passage of the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA) in December, forgiven PPP loans are not subject to tax at the federal level, and expenses paid toward PPP forgiveness are deductible.
- New Jersey: On Feb. 9, 2021, Governor Murphy announced that New Jersey will follow the federal government's lead in making PPP loans tax exempt at the state level and allowing recipients to deduct business expenses that were paid with the loan proceeds.
New Jersey Economic Development Authority (NJEDA) Grants
- Federal: The federal government hasn't directly addressed state grants. Generally, though, they should be taxable to businesses.
- New Jersey: NJEDA grants and tax credits are not subject to tax under the New Jersey Gross Income Tax Act and the Corporation Business Tax Act. Do not report NJEDA grant or credit income on a New Jersey Gross Income Tax or Corporation Business Tax return.
- Federal: The federal government hasn't directly addressed state and local grants. Generally, though, they should be taxable to businesses.
- New Jersey: County-issued COVID-19 grants and tax credits are not subject to tax under the New Jersey Gross Income Tax Act and the Corporation Business Tax Act. Do not report county COVID-19-related grant or credit income on a New Jersey Gross Income Tax or Corporation Business Tax return.
U.S. Small Business Administration (SBA) Grants and Loans
- Federal: Economic Injury Disaster Loan (EIDL) advances and grants are tax-free at the federal level.
- New Jersey: According to the New Jersey Division of Taxation, any payments that the SBA makes for principal, interest and fees are considered to be cancellation of debt (COD). This is because the payments all reduce the amount of the loan in some way. This is true whether the payment is made for a loan in deferment or not in deferment. For Income Tax (GIT) purposes, COD or forgiveness of debt income is not subject to tax and should not be reported on an Individual Income Tax return. For Corporation Business Tax (CBT) purposes, COD income is taxable when it is subject to tax for federal purposes.
Coronavirus-Related Retirement Distributions
- Federal: Per the IRS FAQs: A coronavirus-related distribution is a distribution that is made from an eligible retirement plan to a qualified individual from Jan. 1, 2020, to Dec. 30, 2020, up to an aggregate limit of $100,000 from all plans and IRAs. The 10-percent additional tax on early distributions does not apply to any coronavirus-related distribution. The distributions generally are included in income ratably over a three-year period, starting with the year in which you receive your distribution. For example, if you receive a $9,000 coronavirus-related distribution in 2020, you would report $3,000 in income on your federal income tax return for each of 2020, 2021, and 2022. However, you have the option of including the entire distribution in your income for the year of the distribution.
- New Jersey: Per the New Jersey Division of Taxation: New Jersey follows federal guidelines and timeframes for coronavirus-related distributions (CRD) for qualified individuals. If the repayment of CRD qualifies as a tax-free rollover for federal tax purposes, New Jersey will recognize a CRD as a tax-free rollover. Report your distribution in the same manner as you are required to do for federal purposes. The repayment will qualify when it qualifies for federal purposes. You can file amended returns to exclude CRD income originally reported and taxed and receive a refund.