COVID Programs (PPP/EIDL/PUA)
In 2020 new programs were created to help small businesses including forgiven loans, grants, and unemployment benefits.
PPP Forgiven Loan
The CARES Act states the forgiven loan amount will not be included in your taxable income and you will not pay taxes on the money received. The second stimulus bill on December 27, 2020 clarified how the expenses covered by a PPP loan will be treated. Previously, IRS guidance stated anything you spent your PPP loan proceeds on were not going to be tax deductible. Congress clarified that – now your expenses are tax deductible. Schedule C filers will not be impacted by their PPP forgiven loans.
The second stimulus bill clarified that the EIDL grant will also be tax-free and will not need to be included in your taxable income. An EIDL loan will be treated the same way as any other loan.
Pandemic Unemployment Assistance (PUA) and Unemployment
PUA and Unemployment benefits are considered taxable income. You will pay state and federal taxes on money you received, but will not have to pay medicare or social security taxes on the income.