When COVID-19 relief for business owners became available in 2020, you were focused on how to apply for and receive aid. Now that the 2021 tax season is getting underway, it is time to change your focus to how the aid changes your tax obligations.
Here is a summary of four key federal COVID relief programs and how their benefits will affect your business tax liability.
PPP enabled business owners to apply for a loan of 2.5 times their average monthly payroll. Once they received the loan, they were obligated to spend the funds on approved expenses. If they followed the requirements, they could apply to have the entire loan amount forgiven.
The U.S. Small Business Administration (SBA) expanded the EIDL program in 2020 to help businesses affected by the COVID-19 pandemic. The program included low-interest, long-term loans and emergency cash advances of $10,000 in EIDL grants.
The ERTC under the CARES Act encouraged businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business had been financially impacted by COVID-19.
FFCRA required certain employers to provide employees with paid sick leave or expanded family and medical leave for specified reasons related to COVID-19.
One way to determine what tax relief you are eligible for right now is to use the IRS COVID-19 Business Tax Relief Tool. By answering a few questions, the tool helps you determine if you are eligible.
Bottom line: Knowing how COVID-19 aid impacts your tax obligations is complex. As always, if you need guidance to manage the complexities, please reach out to a tax professional.
Additional sources
IRS FAQs on Coronavirus Tax relief
Small Business Taxes: What to Expect in 2021