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How Will PPP Loans & EIDL Advances Affect My 2020 Taxes?

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Erica Seppala

Erica Seppala

Erica is a writer based in Greenville, South Carolina. She is a graduate of Limestone College. Initially determined to be an accountant, she put away the calculator and picked up a laptop to pursue her dream of being a writer. Erica has spent the past 10 years writing blogs and articles for hundreds of private clients, and she loves sharing her love of research and the written word with everyone around her.

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22 Comments

Responses are not provided or commissioned by the vendor or bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the vendor or bank advertiser. It is not the vendor or bank advertiser's responsibility to ensure all posts and/or questions are answered.

    Johnny Kilroy

    Does this mean EIDL Advances are not subject to the Treasury Offset Program ?

      Erica Seppala

      Hi Johnny!

      The Treasury Offset Program has a list of payments that are exempt from offset that can be viewed here. According to that document Economic Injury Disaster Loan payments issued under section 1110 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) are exempt from offset. This includes EIDL Advances.

        Joe Sweet

        In your response to Rick, you say “Yes, EIDL Advances are no longer counted as taxable income, but EIDLs themselves are still taxable income.” I agree on your first point, but not the second about EIDLs themselves are still taxable income” If it’s a loan (Economic Injury Disaster LOAN) to be repaid, how can it be taxable income? Overall a good article, but consider correcting your last post Jessica.
        Thanks!
        Joe

          Joe Sweet

          Correction: looks like that was your FIRST post way back on January 19th.

            Erica Seppala

            Hi Joe!

            Thank you for pointing out the error in the previous response. Unfortunately, when this article was first written, there was a lot of confusion and conflicting information. Once all of the details were ironed out, we did go back and correct the article. We apologize for any misinformation as we waited for guidance to be released surrounding COVID-19 relief. All information has been updated within the article and we will always continue to monitor any news and updates provided by the SBA and other organizations to ensure we provide accurate information in each of our articles both now and in the future. Thank you for your comment!

              Cecil

              Good information thanks.
              My question is: we paid most of the PPP loan out to our employees and we understand we do not have a tax liability. We included the money in their 1099โ€™s but they have read that it is not taxable. Is it?

                Jessica Dinsmore

                Hello Cecil,
                PPP funds paid to employees are still taxable wages. The loan funds for the employer are NOT taxable, but employees will pay taxes on funds that they receive from the employer — I hope that makes sense.

                  Mary Ma

                  Thanks for the detailed article. Is the employee retention tax credit taxable? I have filed 941-X for Q1, Q2, Q3 nd Q4 2020 for employee retention tax credit. Say the employee retention tax credit refund is $50,000 in total for these four quarters. Is this $50,000 taxable income for year 2021?

                    Jessica Dinsmore

                    Hi Mary,
                    The $50,000 would NOT be included as taxable income. However, this would fall under the expense disallowance rules of the IRS, so deductible wage expenses would be reduced by $50,000. This means that an additional $50K in income would be subject to taxes. Bloomberg has a good article that breaks it down.

                      Jeff J. Lewis

                      Thanks for sharing such a detailed article about How Will PPP Loans & EIDL Advances Affect My 2020 Taxes? keep up the good work!

                        Jason Rose

                        Don’t forget about Enrolled Agents (EA) whose specialty is taxes. There are many good CPA’s who work with taxes, but just because an accountant is a CPA does not necessarily mean that they specialize in taxation. Do your research in advance.

                        In addition, be aware that your state law can be vastly different from Federal Law. Some states completely decoupled from the CARES Act, some states adhere to only SOME of the CARES Act, and some states adopted all of the provisions of the CARES Act. Know what your state laws are for your situation.

                        Finally, find a solid tax preparer for this year. The CARES Act provided many sweeping changes, and then Dec 27th, 2020 changed many of the rules. Advice given to clients in May of 2020 changed when the same question was asked in January of 2021. This is oversimplifying it, but the tax laws are almost a moving target this year.

                          staci cogar

                          Will receipt of the ERC reduce wages/taxes deductible on the employers federal tax return or will it be treated similar to the PPP loans forgiven?

                            Jessica Dinsmore

                            Hi Staci,

                            The IRS says:

                            An employer receiving a tax credit for qualified wages, including allocable qualified health plan expenses, does not include the credit in gross income for federal income tax purposes. Neither the portion of the credit that reduces the employer’s applicable employment taxes, nor the refundable portion of the credit, is included in the employer’s gross income.

                            You can check out FAQs number 85 and 86 for more information on how the ERTC will affect your federal tax return.

                              Thomas J. Brenstein

                              I have a question and can’t find the subject touched upon anywhere. If you applied for PPP loan and also had outstanding SBA loan, PPP automatically added 6 months of monthly loan payments due on top of your PPP loan amount. When you apply for PPP loan forgiveness, those SBA loan payments are not included on the form. How do you treat those SBA loan payments provided under PPP stimulus loan program? Taxable? Exempt? Can you shed any light please..

                                This comment refers to an earlier version of this post and may be outdated.

                                Jessica Dinsmore

                                Hi Thomas,

                                If you are referring to the SBA’s debt relief program that pays six months of your existing SBA loan, there isn’t any official SBA guidance on that, unfortunately. However, several reputable sources state that per the IRS Tax Code, these payments should be considered taxable income.

                                  Shane Knudtson

                                  FYI, under the Consolidated Appropriations Act, businesses that have received PPP loans are now eligible for the Employee Retention Credit. It does not matter whether or not you paid back your PPP loan, as stated in your article. Also, this is retroactive to the CARES Act (March 13th).

                                    This comment refers to an earlier version of this post and may be outdated.

                                    Jessica Dinsmore

                                    Hi Shane,

                                    Thanks very much for your comment! Weโ€™ve updated the post with the most current information available to us.

                                      Caroline Eddinger

                                      Loans aren’t taxable ever. So the EIDL is not taxable. Don’t tell people that. Also I find nowhere in the Consolidated Appropriations Act of 2021 anywhere that EIDL grants are not taxable. I really don’t think you are qualified to be delivering tax advice.

                                        This comment refers to an earlier version of this post and may be outdated.

                                        Jessica Dinsmore

                                        Hi Caroline,

                                        There have been a lot of changes throughout this process and we do our very best to get our content updated as soon as we are made aware of a change (updated again yesterday). Unfortunately, the IRS and SBA have been extraordinarily vague, so much is left open to interpretation until clarity is provided. Thanks very much for your comments- weโ€™ve combed through the relevant posts and updated them with the most current information available to us.

                                          This comment refers to an earlier version of this post and may be outdated.

                                          Rick Ma

                                          Thank you for this nice and detailed article. My question is regarding if the EIDL advance (the $1,000/employee) is taxable or not. You said it is taxable while other authors like Alan Gassman and Rachel Most at Wipfli all said it is not taxable as a result of the Consolidated Appropriations 2021. Would you please kindly comment on where the discrepancies of interpretation maybe? Thank you in advance.

                                            This comment refers to an earlier version of this post and may be outdated.

                                            Jessica Dinsmore

                                            Hi Rick,

                                            Good catch! Yes, EIDL Advances are no longer counted as taxable income, but EIDLs themselves are still taxable income. Unfortunately, there is a lot of room for interpretation discrepancies in the SBA documents! We’ve updated our post to reflect this change. Thanks so much for posting.

                                              This comment refers to an earlier version of this post and may be outdated.

                                              ALI

                                              In regards to EIDL Advance (grant of $1000 per employee), if it was considered taxable, you should be receiving a 1099-G document indication the taxable amount in Box 6.
                                              I’m not an accountant, but a business owner who received an EIDL Advance, a PPP loan that was forgiven and a City Grant in 2020. I only received a 1099-G from my city with the TAXABLE grant amount in BOX 6, and didn’t receive any other documents regarding other income.
                                              Thanks
                                              Ali

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