Good morning and happy Friday!
I’m just going to jump right into things today. I’m still getting questions about all of the government assistance that has rolled out over the past few months, and how it might affect your taxes.
So let us dive right into some answers on potential questions you might have!
Sheri L. Hoble’s
“Real World” Personal Strategy Note
Which Stimulus Payments Are Taxable (and Which Aren’t)
“Oh, my friend, it’s not what they take away from you that counts. It’s what you do with what you have left.” – Hubert Humphrey
As difficult as it might be right now, let’s project forward to next year.
Maybe you have a business that clung to life, and you’re headed towards recovery in 2021. You took the PPP, or perhaps the EIDL (or both). Or perhaps you had to take unemployment for a period of time, but are slowly (but surely) getting back on your feet. The economic stimulus checks helped.
But then… taxes are due.
Well, don’t fear! Sheri L. Hoble is here… to set your mind at ease and to assist in answering any tax-related questions you might have.
Let’s start with the economic stimulus payments. Those are easy — they’re completely tax-free.
But things get trickier with unemployment benefits. Those are, in fact, taxable income. Depending on your state, you can elect to have tax withheld from those payments… and if you’re currently receiving these benefits, you will need to plan to pay taxes on it (depending on your total income, and other deductions, of course).
For the students, what about student loan forgiveness? Well, it depends on how you are receiving that forgiveness assistance. Employer-paid student loan repayment assistance is tax-free through 12/31/20 (per the CARES Act). Any other student loan forgiveness programs are taxable.
Next up: mortgage forbearance. This and other debt forbearance programs which offer suspension and forbearance on credit card, car and other consumer debt do not affect your tax situation, because the debt has not actually been forgiven (the payments are delayed). That said, if debt is forgiven, it is taxable.
Now let’s talk business.
The PPP loan is not taxable. It is a loan, after all. But what about forgiveness? Ha, that’s more interesting, because there’s still congressional and government debate on this, such that it could change. That’s because the IRS took away deductions for any expenses that are factored into forgiveness. In effect, it makes the forgiven portion of the loan to be taxable. This may yet get corrected, but that is the state of things now.
Just like the PPP, the EIDL is not taxable. There was an initial portion of this which was to be considered a grant… and the IRS has not ruled on whether it is taxable. It is said to be “rolled into the PPP” however, so unless something is clarified on that front as well (which I predict will happen), the grant portion will be taxable.
I hope all of this helps. We’re here to help you through this very difficult season. Let us know if there’s anything we can do to help.
Sheri L. Hoble
Sheri L. Hoble, CPA Inc.