Oh, so you thought you were done with the coronavirus test now that it’s 2021? Unfortunately, the coronavirus (and the government’s response to it) has created a ripple effect that will be felt when you sit down to file your taxes for last year. Here are some things to keep in mind:
As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act’s $2 trillion relief package, the government sent up to $1,200 in the form of a stimulus check to millions of Americans shortly after the pandemic shut most of the country down.
The good news is your stimulus check will not count as taxable income. Instead, it’s being treated like a refundable tax credit for 2020. Translation: Your stimulus check is sort of like an advance on money you would have received anyway as part of your tax refund in 2021.
Paycheck Protection Program (PPP) Loans
The CARES Act also tried to help struggling small business owners stay afloat by offering them Paycheck Protection Program (PPP) loans. As long as these loans were used on certain business expenses—payroll, rent or interest on mortgage payments, and utilities, to name a few—these loans were designed to be “forgiven.”
But heads up, small business owners: The IRS says that any expenses you paid with money from those PPP loans cannot be deducted from your taxable income.Plus, you’ll have to get your loan forgiveness application approved by the Small Business Administration before you’re off the hook for the amount you borrowed. But since the SBA is processing the applications for $525 billion in loans given to 5.2 million borrowers at the speed of a sloth wearing ankle weights, we don’t recommend holding your breath.
Many Americans found themselves out of work (at least temporarily) after the pandemic shut down a large part of the economy and turned to unemployment insurance for help. Those who received unemployment benefits will need to pay income taxes on that money.
If you chose not to have taxes withheld from your benefits when you signed up, then you’ll either have to pay quarterly estimated taxes or set aside enough money from your unemployment benefits to pay your taxes come Tax Day.