Is COVID-19 Financial Relief Taxable?
Individuals and business owners have been provided with a wide array of financial assistance during the coronavirus pandemic. As we head into tax season, 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.