Articles & Alerts

Home | Insights | Articles & Alerts | What Are the Tax Reporting Requirements for the 2021 COVID Relief Programs?

What Are the Tax Reporting Requirements for the 2021 COVID Relief Programs?

March 28, 2022

The official opening of the 2021 Tax Season was on January 24, 2022 –
21 days earlier than last year! For taxpayers that received assistance from COVID relief programs in 2021, there may be some questions on what effect the relief has on their tax liability.

Below is a reference on how to treat the most common COVID relief programs when filing your 2021 taxes.

Relief Program

Tax Reporting Requirements
The Payroll Protection Program (PPP) was the most popular COVID Relief for businesses. A PPP loan was a loan issued by banks backed by the Small Business Administration (SBA) to help businesses keep employees working during the pandemic.
  • All expenses paid with proceeds of the loan are deductible.
  • Forgiveness received is treated as federally tax-exempt income.
  • Some states may treat this tax-exempt income differently.
  • Click here for our alert that discusses when forgiveness can be recognized for tax purposes.
The Employee Retention Credit (ERC) provided companies that experienced a decline in gross receipts or experienced a government shutdown a credit of up to 70% on up to $10,000 of qualified wages per qualified employee per quarter for the first three quarters of 2021.
  • Credit is not taxable income.
  • Credit received reduces wage expense (effectively increasing income).
  • States may treat differently.
  • This may impact the Qualified Business Income deduction.
Families First Coronavirus Response Act (FFCRA) Credits provided payroll credits for employers who paid employees while they missed work because of COVID-related circumstances.
  • Similar to the ERC, the credit is not taxable income, but the credit received reduces the related expense.
  • States may treat federal credit differently.
The Economic Injury Disaster Loan (EIDL) was a small business loan program that supported small business recovery from the COVID-19 pandemic. Some applicants qualified for up to $10,000 – $15,000 in funding from the SBA that did not need to be repaid. These EIDL advances were very similar to a government grant. While the advances received by small businesses facing economic hardship due to the pandemic did not have to be paid back, the EIDL loans did.
  • Any advance payment is tax free.
  • All expenses paid with funding are deductible.
  • Since the EIDL loan needs to be repaid, there are no tax reporting consequences.
The Restaurant Revitalization Fund (RRF) provided government grants to help restaurants rebuild from the effects of COVID-19 losses.
  • Proceeds for the loan are treated as tax-exempt income.
  • All expenses paid with the loan are deductible.

It is also important to consider other tax items that could be affected by the COVID Relief Programs, such as the expenses used for Research and Development tax credits (R&D), or for Work Opportunity Tax Credits (WOTC).

If you have any questions on the tax reporting requirements related to any COVID-19 relief you obtained, please reach out to your Anchin Relationship Partner.

Categories:
Tax Tax Credits & Incentives Tax Planning & Compliance

subscribe

Related posts