COVID and taxes: What the pandemic means to your returns

SALT LAKE CITY — It’s that time of year again. On Friday, the IRS began accepting 2020 tax returns.

Filing taxes can be a daunting exercise in any year. But 2020 brought — along with a global pandemic, social unrest and a bruising election season — gobs of federal cash to prop up businesses and individuals during an economic recession. All those stimulus checks and loans might now have Utahns asking: What does this mean for my return?

To answer that and many other questions related to this year’s tax filing, spoke with local tax attorney Michelle Turpin, who has practiced tax law for more than 30 years and founded Michelle Turpin P.C. in the 1990s, which offers tax preparation services.

Is my stimulus check taxable?

No. The stimulus checks, or economic impact payments, authorized by Congress in March and December are not considered taxable income. New York Times columnist Ann Carns said that Americans who were eligible but didn’t receive their checks for some reason can still get the money by claiming a “rebate recovery” credit on their 2020 returns.

Can I deduct work-from-home expenses on my returns?

The Tax Cuts and Jobs Act of 2017 essentially eliminated deductions for unreimbursed employee expenses — work-related costs paid by workers that weren’t reimbursed through their company. Before that law, workers could deduct any amount that exceeded 2% of their gross income, but that provision has since been removed and the pandemic hasn’t changed that.

“So there is no way for all of these employees … to be able to take any kind of deductions for the expenses that they’ve had to incur in order to work remotely,” Turpin said.

But some businesses have reimbursement policies that include work-from-home expenses that they can deduct.

“They could have said, ‘OK employees, if you have to go get an internet connection at your house, or you have to get a computer, or a bigger screen, or whatever expenses to work at home, if you give us those receipts … then we will reimburse you for those amounts,’ and it would be an expense reduction for the business.”

So bottom line: Individuals can’t claim those expenses on their returns, but there is incentive for businesses to reimburse them. Utahns can check with their own employers about their policies.

Will my PPP loan be taxed?

The Paycheck Protection Program was established in March 2020 to provide loans to businesses hurt by coronavirus prevention measures. Many of those loans were forgivable and not intended to be paid back.

“Typically, when a business receives loan forgiveness, it is treated as taxable income,” the Utah State Tax Commission said in a fact sheet. “However, under the CARES Act, this income was treated as nontaxable for federal income tax purposes.”

And since the income was not taxable, the Treasury Department ruled that expenses paid with PPP money were not deductible. However, Congress has since passed HR133, which made those expenses deductible.

“For Utah state income tax purposes, the result of the December action by Congress combined with the provisions of SB6005” — a Utah law about PPP loans — “results in PPP expenses being fully deductible, while PPP forgiven loans will be added back to taxable income in the year and to the extend they are forgiven.”

So under current law, forgiven PPP loans will be taxed.

Turpin said lots of tax preparers are “waiting for Congress to sort of clarify” this rule. “But I think it’s clear that if people don’t pay it back, it’s treated just like any other loan,” she said. “When you borrow money, it’s never considered taxable income. But any kind of debt that’s forgiven becomes recognizable.”

Is unemployment insurance taxed?

Pandemic restrictions resulted in a spike in unemployment that has since come back down, but it still leaves many more Utahns out of work than at this time last year. And yes, for those receiving unemployment payments, those are taxable.

“Hopefully, they’re under the threshold of owing, or owing much,” Turpin said, “but for the ones that are getting unemployment, and maybe (married filing jointly) with someone who is a bigger income earner, I think they’re all going to flip out when they find out they have to pay tax on all that money they’re getting.”

Turpin said she hopes those receiving unemployment can set aside a little money from each check for taxes this year.

The 2020 tax filing deadline is on Thursday, April 15. The IRS says there are no plans to extend the deadline this year, as was done in 2020.


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