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Taxability of state and local government COVID grants

Forum|Forum|4 years ago
September 21, 2021
2 replies
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Does anyone have any updated reliable information regarding the above as there seems to be a lot of differing opinions out the there as to what is taxable under current tax law for fed and CA?

Lacerte Tax

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Best answer by qbteachmt

They are funds received by both the city and county in which the business is situated under an allocation form the CARES Act to the "City of Lemoore/Kings County COVID-19 Small Business Assistance Program.

Per what you have provided below, appears fully taxable to federal and most likely on state return.

"and most likely on state return"

See if your client is on this list:

https://static.business.ca.gov/wp-content/uploads/2021/09/SBCRG-Final-Awards-List-as-of-9-17-21.xlsx

If so, that's the grant they got. The earlier link I gave:

https://gpwcpas.com/grant-credit-loan-and-other-relief-comparison-chart/

Tells you:

These grants are taxable for Federal.
Any expenses paid with this grant are deductible.

These grants are not taxable for California.

Here is a Spidell forum post:

https://www.caltax.com/forums/topic/is-ca-grant-taxable-lendistry/

This link has three Funding groupings: Financial Assistance, Loans and Grants:

https://www.sco.ca.gov/covid19ReliefAndAssistanceSM.html

Here is the link for Kings County:

https://www.countyofkings.com/home/showpublisheddocument/24041/637316316900500000

Here is the grant notice flyer:

https://www.countyofkings.com/home/showpublisheddocument/24045/637316343600670000

Here is the notice of availability:

https://www.countyofkings.com/home/showpublisheddocument/24041/637316316900500000

And: "Lendistry has been designated by the state to act as the intermediary for the Program to disburse the grant funds."

https://www.grants.ca.gov/grants/california-small-business-covid-19-relief-grant-program-round-5/

https://hanfordsentinel.com/news/lemoore-offers-small-business-assistance-grant/article_6f4b945d-a413-58df-bcbe-f1f72da21e77.html

All of this helps you know what sort of grant they got and what it is for and how it is treated, because now you have the sources and the facts.

qbteachmt

Level 15

There hasn't been a lot of change, since the grants were released in 2020. It really depends on the specific grant and who issued it.

I bookmarked this:

https://gpwcpas.com/grant-credit-loan-and-other-relief-comparison-chart/

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1

11BusterAuthor

Level 5

This is fine as same article I had read, however, we have clients who received "COVID-related" local (city) grant money here in CA, so confusing, as usual.

qbteachmt

Level 15

"we have clients"

Business? Individual? School? Medical professional?

"who received "COVID-related" local (city) grant money here in CA,"

City grant funds through the State? What for? The client applied, and the city granted, and all of this is Named, and Specified. That's how this works and has worked, all this time.

Example: Medical professionals got grants for PPE.

Schools got grants for HVAC.

Your CA client might be getting the Golden State payment.

You need to get, and/or give us, the missing details. Then you would know what to search on. In general, as you likely have already found, these are Taxable unless you can find the specific exclusion.

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qbteachmt

Level 15

Here is Nov 17, 2021 IRS update and notice on this issue:

https://www.irs.gov/newsroom/irs-provides-answers-to-states-and-local-governments-on-taxability-and-reporting-of-payments-from-coronavirus-state-and-local-fiscal-recovery-funds

IR-2021-231, November 17, 2021

WASHINGTON — The Internal Revenue Service today provided answers regarding Coronavirus State and Local Fiscal Recovery Funds (SLFR Funds). These funds give eligible state and local governments a substantial infusion of resources to meet pandemic response needs.

The answers are in FAQs (FS-2021-16) and detail the tax consequences for individual recipients and the reporting requirements for the states and local governments and employers, as applicable.

Some SLFR Fund recipients may have to report certain payments as income and may owe tax depending on the purpose of the payment. Today's FAQs also provide answers regarding payments used to assist with childcare or other basic needs.

States and local government administrators will find answers regarding their filing requirements, including when Forms 1099 need to be filed.

These FAQs are being issued to provide general information to taxpayers and tax professionals as expeditiously as possible.

More information about reliance is available.

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