New Laws – COVID-19 Related Government Grants: Taxable or Not?

Billions of dollars in grants are being doled out to individuals and businesses in the wake of the COVID-19 pandemic. Have you availed these grants? allow a Small Business Accountant from Columbia MD to help you. The recently enacted second stimulus bill has increased these grants, including $25 billion in rental assistance for individuals, a new round of Small Business Administration (SBA) Economic Injury Disaster Loan (EIDL) advances, and new grants for shuttered entertainment venues such as movie theaters.

The good news is that, unlike loans such as SBA EIDLs, these grants don’t have to be paid back.

The bad news is that federal, state, and local grants may be taxable income to the grantee.

Seems complicated? Allow me, Business And Tax Accountant, to help you simplify things and save money.

All income, from whatever source derived, is taxable income unless the tax law provides an exception.

Since a government grant is income, it is taxable unless otherwise provided by law. A Tax Accountant in Columbia MD can help you plan and prepare your taxes according to the recently changed rules.

Fortunately, the general rule that grants are taxable does not apply to COVID-19-related grants to individuals. The general welfare exclusion allows individual taxpayers to exclude from their taxable income payments made by government units in connection with a qualified disaster. These include payments for necessary personal, family, or living expenses—or, more broadly, payments to promote the general welfare.

The COVID-19 pandemic is a qualified disaster, so federal, state, and local government grants to individuals for COVID-19-related expenses are tax-free. This would include, for example, the $25 billion in new rental assistance authorized by the recent enactment of the new stimulus bill that was signed into law by the president on December 27, 2020. If you’re not sure how you can benefit from these grants, get in touch one with of the many Accounting Firms In Columbia, MD like Sigma Accountants

Payments to businesses do not qualify under the general welfare exclusion because they are not based on individual or family need.  Thus, COVID-19-related government grants to businesses are taxable income unless Congress acts to specifically exempt them from tax. A Small Business Accountant from Columbia MD can help you reduce your tax liability by maintaining your books correctly.

For example, the CARES Act established the Coronavirus Relief Fund, which gave $150 billion to state and local governments to (among other things) establish grant programs to help businesses impacted by the COVID-19 pandemic.  The IRS has made clear that these state and local grants to businesses are taxable income.

State and local grants to businesses funded outside the CARES Act are also taxable income to the businesses.

But Congress has acted to make a few types of COVID-19-related government grants tax-free, as described below.

A good accountant In Maryland can help you save money on your taxes and take the maximum benefit of these government grants. Get in touch for a free consultation today.

When Congress enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act, it made low-interest EIDLs available to businesses in all 50 states. Congress also established a new EIDL emergency advance program that gave EIDL applicants loan advances of $1,000 per employee, up to $10,000. Although they’re called “advances,” these payments are actually grants—they need not be paid back.

Applicants received the EIDL advance whether or not they went ahead and completed the process to obtain an EIDL loan. Unfortunately, due to funding issues, not all eligible businesses were paid the full $10,000 advance to which they were entitled. The EIDL advance program ended July 11 when the funding ran out.

Were you able to claim this advance grant? A Tax Accountant Columbia MD could have helped you claim them on time. If you were able to claim the grant, you will need professional Tax Preparation help from a Columbia MD based accountant. We’re here to serve you.

The new COVID-19 stimulus bill signed into law on December 27, 2020, provides $20 billion for EIDL advance grants of $10,000 for small businesses that

• were in operation by January 31, 2020, with fewer than 300 employees;
• were directly affected by COVID-19;
• are located in low-income communities (census tracts with a 20 percent poverty rate or 80 percent of the statewide median income); and
• have suffered a decline in gross receipts greater than 30 percent during an eight-week period between March 2, 2020, and December 31, 2021, relative to a comparable eight-week period immediately preceding March 2, 2020, or during 2019 (as far back as January 1, 2019).

In addition, the new law directs the SBA to create a process for those businesses described above that are existing EIDL advance grantees and received less than $10,000 to reapply for the difference between what they received and what they should have been paid.

Not sure if your business qualifies? I’m a CPA In Columbia MD that can help you simplify accounting and bookkeeping. Please get in touch today

If you receive an EIDL advance and also a PPP loan, the CARES Act requires the lender to deduct the advance from your PPP forgiveness, effectively denying you any benefit from the advance.

The new stimulus law repeals that requirement retroactively. For insights, see New PPP Forgiveness Rules for Past, Current, and New PPP Money.

Most important, the new stimulus law provides that the EIDL advances are not taxable income. And otherwise deductible business expenses paid with EIDL advances are tax-deductible. A good Tax Accountant in Maryland like Sigma can help you claim proper deductions.

The new stimulus law also gives $15 billion to the SBA to make grants to live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theater operators, and talent representatives who demonstrate a 25 percent reduction in revenues due to the pandemic.

The SBA may make an initial grant of up to $10 million and a supplemental grant of up to 50 percent of the initial grant. The grants must be used for expenses such as payroll costs, rent, utilities, and personal protective equipment.

As with EIDL advances, these grants are tax-free, and expenses paid with the grants are tax-deductible.

We’re a leading Business And Tax Accountant in Columbia MD that helps shuttered venues claim benefits and deductions as per the law. Feel free to contact us for advice or help.

Here are eight things to know from this article:

1. Government grants are taxable income to the recipient unless the tax law makes an

exception.

1. COVID-19-related grants to individuals are tax-free under the general welfare exclusion.
2. COVID-19-related grants to businesses do not qualify as tax-free under the general welfare exclusion and are generally taxable, including state and local grants made under the CARES Act Coronavirus Relief Fund.
3. EIDL advances are not taxable, and expenses paid with such advances are tax-deductible.
4. Business in low-income areas that received EIDL advances of less than $10,000 will be able to apply for an increase in the prior advance to the $10,000 level.
5. The new law sets $20 billion for EIDL advances for businesses located in low-income areas.
6. EIDL advances will not offset PPP forgiveness, and any such prior offsets will be refunded
7. SBA grants to shuttered venue operators are tax-free, and expenses paid with the monies are tax-deductible.

We hope we were able to clarify things for you. Our Accounting Firm In Columbia, MD is a specialised CPA For Doctors from Maryland. We help Small businesses, individuals and medical practitioners reach their financial goals.