Americans owe their third round of stimulus payments to the enormous American Rescue Plan Act of 2021. Among its $1.9 trillion of aid, the recent law also issued a couple of tax breaks with broad application.
Businesses nationwide were allowed to avoid federal taxes for loans that they had taken out and that subsequently were forgiven by the government under the Paycheck Protection Program (PPP).
Many workers who lost jobs also were allowed to exclude the first $10,200 of unemployment compensation they received last year (in 2020). In effect, the law erased that amount from the taxpayer’s income and from federal taxes.
But what happened in Washington, D.C., hasn’t happened yet in Saint Paul. Businesses and their workers still owe income taxes on both those “rescues.” A bill authorizing both has been passed by the Minnesota House of Representatives. But a companion bill (SF263) has been bogged down in the Senate, which now has adjourned until early April.
The issue is “conformity,” or adjusting state law to reflect federal changes, Neal Anthony, a columnist for the StarTribune newspaper, notes.
Under the federal PPP, businesses obtain an emergency loan to help pay costs caused by the coronavirus epidemic. If they spend the funds correctly, the federal government forgives the loan and the business does not have to repay it.
Normally, those forgiven amounts of PPP loans and the first $10,200 of unemployment compensation are taxable in Minnesota. So, unless the Legislature conforms state tax code to exemptions in the federal American Rescue Plan Act, Minnesotans will have to declare both as taxable income.
In fact, last Thursday (March 25), the Minnesota Department of Revenue issued a bulletin telling tax preparers how to add the unemployment compensation into their clients’ state tax returns.
To find expert guidance for planning and filing tax returns, contact EricJohn Ltd. owner Eric Buechler, who is an enrolled agent recognized by the Internal Revenue Service.