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: Unemployment compensation, including the extra $600 per week provided for as part of the CARES Act, is subject to federal income tax and must be reported on your federal tax return. The New Jersey Division of Unemployment Insurance has provided information about reporting New Jersey unemployment compensation on your federal tax return.
- 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: The New Jersey Division of Taxation has indicated that these grants are non-taxable for Gross Income Tax employer remittance (GITER) and Corporate Business Tax (CBT).
- Federal: The federal government hasn't directly addressed state and local grants. Generally, though, they should be taxable to businesses.
- New Jersey: The New Jersey Division of Taxation has indicated that county CARES grants are not subject to tax.
U.S. Small Business Administration (SBA) Grants
- Federal: Economic Injury Disaster Loan (EIDL) advances and grants are tax-free at the federal level.
- New Jersey: Guidance is pending. Updates will be provided here as they become available.