Last Updated Monday, June 7, 2021
Here are important details about SBA assistance for small businesses and the self-employed related to the bill signed into law in December 2020. (Note this article does not address any provisions of the $1.9 trillion Stimulus bill President Biden signed into law on March 11, 2021.)
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The $900 billion stimulus package that was signed into law in December, 2020 included a number of provisions that helped small businesses and the self-employed. There were several key components of the legislation, including the renewal of both Paycheck Protection Program (PPP) loans and Economic Injury Disaster Loans, as well as other provisions that helped businesses whose income has been negatively impacted by the pandemic.
Editor’s note: the PPP2 program ended May 31, 2021. Recipients must apply for forgiveness to avoid having to pay back the PPP loans. The EIDL advance (grant) also has ended, but EIDL loans are still available
You should be aware of how participating in these programs (now or if you accessed them previously) may impact your freelance taxes.
Here is an overview of what freelancers and small business can expect from a tax perspective with this new round of COVID-19 funding:
Changes in Taxability of PPP Forgiveness Amounts and EIDL Grants
There is very good news about PPP loan forgiveness for the self-employed and for business owners: the Payroll Protection Program (PPP) loan forgiveness amount will not be considered taxable income at the federal level. This could be a significant tax saving for your business. However, there is not any change in the guidance for state and local tax treatment of PPP funds. Therefore, be sure to check with your own State and local tax authorities for additional information.
In addition, the new bill allows the deduction of business expenses paid for with forgiven Paycheck Protection Program loans.
Grants for Theater and Cultural Industry Workers
If you work in the live theater, art or other cultural industry the $16 billion grants included in the bill provides funding for live venues, theaters and museum operators that have lost at least 25% of their year-over-year revenues. See the SBA website for details of the Shuttered Venue Operators Grant program.
Extended Unemployment Benefits and Meal Deductions for Freelancers
- There is an allocation for $300 per week (for a period of 11 weeks) for enhanced unemployment insurance benefits—and self-employed individuals remain eligible to collect unemployment—with the knowledge that these funds are considered taxable income. Contact your state unemployment office for details.
- The bill also restores the 100 percent business meals deduction for two years to help the restaurant industry.
Note: Money allocated for EIDL grants has been used up. (EIDL loans are still available, however.)
- The new legislation clarifies that EIDL grants are not taxable, that businesses who receive them will not be denied a tax deduction for qualified expenses paid for with those funds, and that EIDL grants will not be deducted from PPP for loan forgiveness purposes. This applies to all EIDL grants, including those already received.
- Economic loss is defined as “the amount by which the gross receipts of the covered entity declined during an 8-week period between March 2, 2020, and December 17, 2021, relative to a comparable 8-week period immediately preceding March 2, 2020, or during 2019.” The SBA will come up with a formula for seasonal businesses.
Please note, due to the high volume of inquiries in regard to COVID-19, Jonathan is not able to respond to individual requests for information at this time other than his active clients, but he is happy to take tax-related service inquiry phone calls.
About the Author
Jonathan Medows is a New York City-based CPA who specializes in taxes and business issues for freelancers and self-employed individuals across the country. His website, www.cpaforfreelancers.com features a blog, how-to articles, and a comprehensive freelance tax guide.