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PPP and other pandemic tax moves to make in March 2021

Paycheck Protection Program loan_woman in medical mask holding check

March 1 has arrived. Or, as some coronavirus pandemic weary wits have dubbed it, March 2.0 or March 366.

Yes, we've been dealing with COVID-19 for a year now. And yes, the virus and its myriad disruptions continue.

But the development of multiple vaccines and prospects for expanded distribution of the shots give us reason to hope that the coronavirus after-times are within sight.

Another COVID-19 relief package, dubbed the American Rescue Plan, also is closer to reality. The House passed the measure over the weekend, and the Biden Administration is pushing the Senate to hammer out its differences with the lower chamber by mid-March so that unemployment recipients don't encounter a gap in their benefits.

Special small business PPP application period: Meanwhile, there's another March deadline for an earlier coronavirus aid creation, the Paycheck Protection Program (PPP).

Smaller businesses and nonprofits with fewer than 20 employees have until 5 p.m. Eastern Time on Tuesday, March 9, to apply for these federally supported loans.

As part of this exclusive PPP application period for smaller entities, the Small Business Administration has announced that it will:

  • Allow sole proprietors, independent contractors and self-employed individuals to receive more financial support by revising the PPP's funding formula for these categories of applicants;
  • Eliminate an exclusionary restriction on PPP access for small business owners with prior non-financial fraud felony convictions, consistent with a bipartisan Congressional proposal;
  • Eliminate PPP access restrictions on small business owners who have struggled to make federal student loan payments by eliminating federal student loan debt delinquency and default as disqualifiers to participating in the PPP; and
  • Ensure access for non-citizen small business owners who are lawfully residing in the United States by clarifying that they may use an Individual Taxpayer Identification Number (ITIN) to apply for the PPP.

If your company or nonprofit is eligible for PPP help under these size parameters, you can apply by downloading the First Draw PPP loan application or Second Draw PPP loan application. The SBA also has an online lender match tool that will help you find a participating PPP financial institution.

Federal taxes and PPP money: While PPP loans have been a lifeline for many companies, there are some key tax factors to keep in mind.

Businesses got a new PPP-related tax break with the enactment of the December law. It made it clear that business expenses paid with PPP money are tax deductible even if the loan is forgiven.

About that forgiveness. In most tax situations, canceled debt is taxable income. Sometimes Congress makes exceptions, as it did with reworked home loans to help out folks who faced losing their residences in the wake of the 2008 housing crisis and subsequent recessions.

Congress did the same for PPP loan recipients. Any of these forgiven COVID-prompted business loans are exempt from federal tax.

But one PPP no-go is paying your business' taxes with the loan funds. The money can only pay for specific outlined expenses, such as payroll, rent, mortgage interest, utilities, personal protective equipment and business software. Taxes are not on that list.

Don't overlook state tax implications: Some states, however, are not as, well, forgiving when it comes to forgiven PPP money.

Nineteen states have opted to treat the canceled loan amounts as taxable income or deny the deduction for expenses paid using forgiven PPP money. Or both.

The Tax Foundation map below gives you an idea of your state's tax stance on PPP loans.

PPP-state-tax-issues_Tax-Foundation-Feb-26-01

File now to max out the next EIP: If you don't run your own business, don't worry. Individuals have some pandemic related tax moves to consider this month.

A key one is deciding whether it's worth filing your 2020 tax return as soon as possible. Your choice could affect how much or whether you'll get any EIP this year or should/will be able to collect it as a recovery rebate tax credit when you file 2021 taxes next year.

The American Rescue Plan includes, like two previous COVID-19 packages, another economic impact payment (EIP). This third payment could be as much as $1,400 per person.

Like the two earlier payments — $1,200 per person back in March 2020 and $600 per individual just after last Christmas — the Internal Revenue Service will distribute the money.

Also like the two earlier payments, the precise amount will be reduced if you make more than a certain amount. The $1,400 per person will be phased out for single taxpayers with adjusted gross income (AGI) of more than $75,000 or $150,000 for married couples filing jointly.

And finally, again as with the earlier EIPs, the IRS will determine just home much money you'll get from the American Rescue Plan based on your latest tax information in the agency's system. The IRS will use 2019 AGI to determine eligibility, unless the taxpayer has already filed a 2020 return.

That means if your 2020 tax return income will get you the maximum $1,400 EIP this year (and your earlier filings on record won't), then file your current Form 1040 soon.

Also look into 2021 earnings projections: In determining whether to file quickly, you'll also want to look at what you expect your 2021 earnings will be.

Just like this year, you'll be able on your 2021 return to claim any of the $1,400 American Rescue Plan EIP that you didn't get in advance this year. If your AGI in 2021 doesn't limit you.

So if you think your 2021 income will exceed the full EIP threshold for your filing status, that's another reason to file your 2020 return now if it will get you the maximum.

And if you're worried about getting too much in advance, don't be. You don't have to repay any of the EIP amount you get in 2020 even if it turns out your final 2021 AGI exceeds the threshold.

More 'normal' March tax moves: Although we're now into our second year of COVID-19 tax considerations, there also are some, dare I say, normal tax moves to consider this month.

Regardless of any EIP issues, you need to at least start thinking about filing your 2020 tax return. The IRS still insists that April 15 is Tax Day. That's just six weeks away. So check out this filing checklist and start getting your materials in order so you can finish your Form 1040 on time.

March_tax_moves_160You can find even more March Tax Moves over in the ol' blog's right column. As usual, these pieces of tax advice are listed under the countdown clock that's keeping track of the countdown to Tax Day 2021.

If you're ready to go after your taxes like the proverbial March lion, they should provide you with some ideas.

If, however, you're a tax lamb, too timid right now to take care of your taxes, there's a suggestion there for you, too. Get a filing extension. That will give you six more months to finish filling out your forms, but not more time to pay what you owe!

 

Coronavirus Caveat & More Information
In 2021, we all still are dealing with extraordinary circumstances,
both in our daily lives and when it comes to our taxes.
The COVID-19 pandemic and efforts to reduce its transmission
and protect ourselves and our families means that,
for the most part, we're focusing on just getting through these trying days.

But life as we knew it before the coronavirus will return,
along with our mundane tax matters.
Here's hoping that happens soon!
In the meantime, you can find more on the virus and its effects on our taxes
by clicking Coronavirus (COVID-19) and Taxes.

 

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