Tax season is once again upon us. Many aspects of your life may look very different due to the COVID-19 pandemic, and that doesn’t stop with your taxes and finances.
In response to the economic hardships felt across the nation, a number of COVID relief measures were passed, some of which will affect your taxes, experts say.
Paycheck Protection Program loan recipients
While Congress has allowed business owners who received PPP loans to make PPP expenses, like rent and payroll, completely tax-deductible, California has yet to take the same steps.
Assembly Bill 281 was introduced in the Legislature to conform California law with federal law, but it’s still in its initial stages, meaning there will be amendments to its current form, according to attorney Brian Koegle of Poole Shaffery & Koegle LLP.
“(AB) 281 is obviously the biggest one that we’re tracking right now, because it has the broadest impact,” Koegle said.
Business owners who received the PPP loan should consider going on extension this tax season, until it’s clearer what AB 281’s impact will be, Koegle added.
While Gov. Gavin Newsom signed a number of COVID-19-related measures Tuesday, the Legislature is still negotiating a PPP and Economic Injury Disaster Loan conformity bill that would allow businesses to deduct expenses paid with these loans or grants, and tax experts say it is hoped that this bill would be passed in the coming weeks.
Employee retention tax credit
The original Coronavirus Aid, Relief, and Economic Security, or CARES, Act included an employee retention tax credit, which encouraged employers to keep employees on their payroll.
The most recent COVID-19 relief bill passed in December extends and expands this credit through June 30, added Ken Raleigh, tax director at Hedman Partners.
The refundable tax credit increased to 70% of up to $10,000 in wages paid by an eligible employer for each quarter whose business had been financially impacted by COVID-19, and is now available to businesses who received PPP loans, which it wasn’t before.
“You have to have been impacted by a government order that limited your ability to do business, but that’s quite a few businesses, so that’s a hot topic,” Raleigh said.
Newsom approves more small business COVID-19 relief
Newsom signed a number of legislation, including a measure set to provide cash payments to qualified small businesses impacted by COVID-19.
Senate Bill 87 is expected to codify and provide an additional $2.1 billion to expand on the California Relief Program over the $500 million currently being distributed.
The program provides grants of up to $25,000 for qualified small businesses, including nonprofits, with annual gross revenues of more than $1,000 and less than $2.5 million.
These payments are set to be exempt from California tax, but are subject to federal tax.
Proposed federal COVID-19 relief bill
In addition to the proposed $1,400 stimulus payments expected to be included in the $1.9-trillion COVID-19 relief bill set to be approved by the House soon, the current bill includes an extension of the Families First Coronavirus Response Act through Sept. 30, according to Koegle.
“That would impact businesses of all sizes, and revive the sunset provisions requiring paid sick leave and paid family medical leave,” Koegle said.
As currently drafted, the bill would not affect businesses who have already provided the maximum emergency paid sick leave and paid family medical leave and does not create a new obligation for 2021, Koegle added.
Chamber announces support of tax relief bills
The Santa Clarita Valley Chamber of Commerce has announced its support of two tax relief bills for small businesses.
The first, Assembly Bill 62, would provide small and essential businesses with an income tax credit for the costs of complying with the California Division of Occupational Safety and Health COVID-19 Emergency Temporary Standards.
This series of COVID-19 emergency workplace standards were adopted in November and apply to nearly every employer operating in California, according to the chamber.
“Federal, state, and local grant programs, while helpful, are limited and not enough to sustain businesses in the long-term who are fighting for their lives,” a chamber statement read. “Businesses must be given as much relief as possible in order to not only remain in business but thrive when the pandemic lifts.”
In addition, the chamber supports AB 91, a tax relief bill for small businesses set to reduce the annual $800 minimum franchise tax to $400 for small businesses and to $200 for micro businesses.