You may be wondering if the EIDL grant you received is taxable. The answer to this question can be confusing, as there are many rules and regulations surrounding grants and their taxation.
Is EIDL grant taxable? No, the EIDL grant is not taxable. The grants from EIDL are not taxed as business income on your tax return since they are not supposed to be reported.
To make things simple, we’ve created this article that will help you determine if the EIDL grant you received is taxable or not.
Is EIDL Grant Taxable?
The EIDL is designed to help businesses recover from an economic loss rather than a physical calamity. These are the only SBA-sponsored loans available. There is no external lender involvement because all of the processing, funding, and servicing is handled by SBA.
The Small Business Administration (SBA) provides $15,000 in COVID-19 Economic Injury Disaster Loan (EIDL) funding to eligible applicants that do not need to be paid back. These “advances” are similar to a grant but lack the constraints associated with a government grant.
EIDL is not taxable for federal tax and the expenses paid with this advance are deductible.
To obtain an advance, you must first apply for a COVID-19 EIDL. You do not have to accept the loan or be accepted for the loan in order to receive an advance. If your company is located in a low-income area and you apply for the loan, SBA will send you an email invitation to apply for one.
Please check the map to ensure you are in a low-income area before submitting an application, and be sure to review the eligibility criteria.
Calculating Taxes On EIDL Grant
EIDL is not taxable for federal tax and the expenses paid with this advance are deductible.
There are the following two advances/grants available under EIDL along with eligibility criteria for each.
Targeted EIDL Advance
The Targeted EIDL Advance provides funds of up to $10,000 to applicants who:
- Are in a low-income community. To assist applicants in determining if they reside in a low-income area as defined in section 45D(e) of the Internal Revenue Code, a mapping tool (sbaeidl.policymap.com) is accessible. Because SBA encourages potential applicants to check the map before applying to determine whether they qualify, and
- The applicant must demonstrate a 30% decrease in income for an eight-week period beginning March 2, 2020, or later. If the applicant meets the low-income community criteria, they will be asked to submit their gross monthly revenue (all forms of combined monthly earnings received, such as profits or salaries) to verify that the 30% reduction occurred; and
- Have 300 or fewer employees.
Businesses that are eligible for the EIDL program can apply. This includes sole proprietorships, independent contractors, and private, non-profit organizations. Agricultural businesses are not included in this group.
Supplemental Targeted Advance
The Supplemental Targeted Advance is a $5,000 loan that does not have to be repaid. Even if you have previously received the full amount of the EIDL Advance, you may be eligible for the Supplemental Targeted Advance if you fulfill certain criteria. There is also a $15,000 limit on the total of all prior EIDL Advance and Targeted EIDL Advance amounts combined.
Completing the Targeted EIDL Advance application is a condition for receiving the Supplemental Targeted Advance.
Make sure your small business meets the following requirements before proceeding:
- The company is located in a low-income neighborhood. Use this mapping tool to see whether your firm is located in a low-income community as defined under section 45D(e) of the Internal Revenue Code. To qualify, the business address must be in a low-income area, so SBA advises you to check the map before applying.; and
- During an eight-week period beginning March 2, 2020, or later, and compared to the same period of the previous year, this category has a potential for more than a 50% cost overrun. Applicants must submit their gross monthly revenue (all forms of combined monthly earnings received, such as profits or salaries) from January 2019 through the current month, and
- Has 10 or fewer employees.
Sole proprietors, independent contractors, private nonprofit organizations, and others that usually qualify for the EIDL program and satisfy the above criteria can apply for Supplemental Targeted Advances. However, agricultural companies such as farmers and ranchers are not eligible. Farmers and ranchers may still apply for loan aid under COVID-19’s EIDL program
How To File An EIDL Grant Under Federal Taxes?
Any Supplemental Targeted EIDL Advance is not included in the recipient’s gross income under Section 9672(1) and (2) of the ARP, and no deduction, tax attribute reduction, or basis increase is denied as a result of this.
The following are the three essential documents you will need to submit if you have a partnership, own 20% or more of the firm, or are an affiliate: The tax information, as well as the SBA Form 413 and IRS, Form 4506-T if you have a business. If you’ve already completed your 2019 tax returns, there are alternatives acceptable.
The SBA Form 1368, Additional Filing Requirements, is used to document economic loss. For the previous three years and the current year to date, you’ll need month-by-month sales dataThis has been taken over by the EIDL Supporting Information Form, ODA Form P019. It will be given to you by the disaster center if requested.
State Taxes On EIDL Grants
The funds from the EIDL are not treated as taxable business revenue on your tax return. You may also reduce your tax burden by claiming any costs that were paid for with this cash.
It’s easier to claim your deductions when you have receipts, bank statements, and other records. It might be beneficial to keep receipts for all of your deductible expenses so that you can claim them later on in tax time. Consult with a tax expert or accountant if you have any questions about deductible costs.
Conclusion
The EIDL is a valuable resource for small businesses and entrepreneurs facing crises due to pandemics. Its non-taxability nature is specifically to uplift these small businesses. By understanding how the program works, you can take advantage of the many benefits it has to offer. Be sure to track all of your expenses related to the EIDL so you can claim them on your taxes.