Tax

Tax

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. 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.

As a rule, government grants to help individuals after a disaster such as the COVID-19 pandemic are not taxable income under the general welfare exclusion. Thus, for example, pandemic rental assistance is not taxable income.

But grants to businesses do not come within the general welfare exclusion. Thus, they are taxable unless Congress specifically acts to exempt them.

Congress has acted with the second stimulus bill to make both EIDL loan advances and grants for shuttered entertainment venues tax-free. 

If you have any further questions or need my assistance, please call me on my direct line at 408.778.9651.

Tax

PPP Alert: New Shot for Your Tax-Free Cash

Did you miss out on the first two opportunities to receive your tax-free Paycheck Protection Program (PPP) cash?

Many did miss out. Why?

One reason: the word “loan.” 

Who wants a loan? No one. Well, almost no one.

But who wants a cash gift, tax-free? 

If you do, read on for the details. But first, you should know that the big picture works like this:

  1. You obtain your PPP tax-free monies from a lender (it’s called a “loan,” but watch that word disappear as you read this letter).
  2. You spend all the PPP money on yourself if you are self-employed or operate as a partnership; on payroll (including pay to you, if that applies); and on other covered expenses such as rent, interest, utilities, operations, property damage, suppliers, and worker protection.
  3. You apply for loan forgiveness and achieve 100 percent loan forgiveness, which is easy-peasy when you spend 60 percent or more of the money on payroll (and yourself if you are self-employed or a partner in a partnership).
  4. You deduct the expenses that you paid with the PPP loan monies that were forgiven.

New Money on the Table

The new COVID-19 stimulus act sets aside $35 billion for first-time PPP applicants, with $15 billion of that made in loans for first-time applicants with 10 employees or fewer or made in amounts less than $250,000 to businesses in low-income areas.

New Deadline

The new deadline of March 31, 2021, replaces the expired deadline of August 8, 2020.

The monies available in this new round of PPP funding are on a first-come, first-served basis. Don’t procrastinate. Get your application for your first-time PPP monies in place now.

If you would like to discuss the PPP, please call me on my direct line at 408.778.9651.

Tax

Round 2: Additional Tax-Free PPP Money for You?

If you received an initial PPP loan, you can qualify for a second round (called a “second draw”) of PPP tax-free money. 

To qualify for the second-draw PPP money, you must

  1. have 300 or fewer employees;
  2. have suffered a 25 percent or greater loss in revenue during at least one quarter of 2020 when compared to 2019; and
  3. have already used your original PPP money (or be planning to use it soon).

The mechanics of the second-draw PPP loan amount follow the rules that apply to the original (first-draw) PPP loan, with some modifications. The overall limits work as follows:

  • The loans are capped at $2 million or less.
  • If you are not a hotel or restaurant (NAICS code 72), you identify your average monthly payroll for either 2019 or the trailing 12 months, and then multiply it by 2.5 to find your loan amount.
  • If you are a hotel or restaurant, you multiply by 3.5.

During a period of your choice, beginning eight weeks from the origination date of the loan and ending 24 weeks after the origination date, you must use 60 percent or more of the monies for defined payroll in order to achieve 100 percent forgiveness. 

Expenses that can qualify for forgiveness include:

  • Payroll
  • Rent
  • Interest on mortgage obligations
  • Utilities
  • Operations expenditures
  • Property damage
  • Supplier costs
  • Worker protection

And finally, keep these three thoughts in mind:

  1. Act fast, because this money goes in a hurry.
  2. The incoming PPP loan monies are tax-free.
  3. Expenses paid with PPP loan monies that are forgiven are tax-deductible.

You will not find a better bargain.

If you would like to discuss this second draw opportunity, please don’t hesitate to call me on my direct line at 408.778.9651.

Scroll to top