The Coronavirus Aid, Relief and Economic Security (CARES) Act provided direct payments to eligible Americans, expanded unemployment benefits, provided over $600 billion in small business loans, and included several other provisions to help businesses, non-profit organizations, and individuals.
Following is the current tax treatment of Federal and State of New Jersey COVID-19 financial assistance programs:
Federal Economic Impact Payments (Stimulus Payments):
- Federal: The payments are not taxable, nor will they reduce a taxpayer’s refund or increase the amount they owe on their 2020 or 2021 tax returns. Eligible taxpayers that did not receive either a payment or full amount can claim the Recovery Rebate Credit when filing their tax return. Recipients will receive an IRS notice reporting the amount of the payment; this should be included with their tax records.
- New Jersey: Economic Impact Payments are not subject to income tax in New Jersey and should not be reported on your New Jersey income tax return.
Unemployment Compensation:
- Federal: Unemployment compensation, including the extra $600 per week provided under the CARES Act, is subject to federal income tax and must be reported on your federal tax return.
- New Jersey: Unemployment compensation received from the State, as well as the additional $600 per week provided as part of the CARES Act, is not subject to income tax on your New Jersey tax return.
Paycheck Protection Program (PPP) Loan Forgiveness:
- Federal: The Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA), that became law in December of 2020, confirmed that forgiven PPP loans are not subject to tax at the federal level and stated that expenses paid with PPP loan proceeds are tax deductible, reversing the prior IRS position.
- New Jersey: There is proposed legislation that, if passed, would conform state treatment of PPP loan forgiveness with the federal position. This would exclude forgiven PPP loans from state taxable income and allow the expenses paid with PPP loan proceeds to be deductible.
New Jersey Economic Development Authority (NJEDA) Grants:
- Federal: Although the federal government has not directly addressed these grants, they are generally 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).
Small Business Administration (SBA) Grants:
- Federal: Economic Injury Disaster Loan (EIDL) advances and grants are tax-free for federal tax purposes.
- New Jersey: Guidance with regard to the state tax consequences of these grants is pending.
Cullari Carrico LLC remains committed to assisting our clients, friends and communities during these uncertain times and has a dedicated team in place that can assist with any questions you have related to COVID-19 relief programs. We invite you to contact us if you have questions or concerns.