There are many individuals throughout Orange County and all over the United States who have recently lost their job in the last few months. If you are part of the millions of individuals who have filed for unemployment, you may have noticed an extra $600 on top of your unemployment benefits. This funding was put into place to provide relief to those who lost their jobs due to the COVID-19 pandemic through the CARES Act. It is scheduled to last until July 31, 2020.
Just like unemployment benefits, this extra $600 is not tax-free, so please have a plan for next year’s tax season!
You do have different options when it comes to paying taxes on these benefits, but they must be paid one way or another. If you are receiving unemployment income, taxes can be paid by quarterly estimates (typically a more complicated option), by having income taxes withheld, or by simply paying them when taxes are due. The IRS provides Form W-4V that instructs the state government to withhold part of your pay to be put toward federal and state income taxes.
The CARES Act also provided financial relief with Payment Protection Program (PPP) Loans for businesses and stimulus checks for individuals and families. With these resources also comes specific guidelines when it comes to taxable income. The CARES Act specifically states that it excludes PPP loan forgiveness from taxable income but does not mention the deductibility of expenses paid with the loan proceeds. According to a recent notice from the IRS, under the Internal Revenue Code and existing guidance, the loan proceeds that are forgiven under the PPP are considered exempt income, and expenses that are allocable to that exempt income are nondeductible. On the other hand, stimulus checks are not taxable and should not be considered in the same way the PPP loans or unemployment benefits come next tax season.
At Hall & Company, an Orange County CPA firm based in Irvine, we are here to assist you in understanding these recent updates. We are committed to providing quality tax and accounting services along with sound financial direction to clients throughout Orange County, California. We offer business development consulting, audit, tax preparation, IRS Audit, retirement planning, business roundtables, estate planning, QuickBooks consulting, Interim Chief Financial Officers, and a full range of traditional public accounting services.
Please do not hesitate to reach out to us with any questions. For useful information and updates, check out our COVID-19 resources page. For more general information regarding tax and accounting news and best practices, visit out our blog.