For Gig Staff and Enterprise Homeowners, Taxes Are Even Trickier Now


The revised loan “is a better program – there is more money and more employers available,” said Shelly Abril, director of tax compliance at Gusto, a payroll company. “But that brings all this additional complexity with it.”

Devon Lind plans to apply for retrospective 2020 credits for its employees at Blender, a collection of businesses in Spokane, Washington. Blender’s two core businesses – Photoboxx, which sells photo printing and display technology, and Smash, a mobile “rage room” where people can work, destroying records – both depend on events and sales have plummeted over the past year. The company had nine employees before the pandemic. It fired five.

How has the pandemic changed your taxes?

Are business stimulus payments taxed?

No The so-called economic impact payments are not treated as income. In fact, it’s technically an advance on a tax credit known as a Recovery Rebate Credit. The payments could indirectly affect state income tax payments in a handful of states where federal tax is deductible from taxable state income, as our colleague Ann Carrns wrote. Continue reading.

Are my unemployment benefits taxable?

Most of time. Unemployment insurance is usually subject to both federal and state income tax, although there are exceptions (nine states do not levy their own income taxes, another six are exempt from taxation according to the tax foundation). However, they do not owe so-called wage taxes, which are paid for Social Security and Medicare. With the new relief bill, the first $ 10,200 in benefits will be tax-free if your income is less than $ 150,000. This applies to 2020 only. (If you’ve already filed your taxes, see IRS guidelines.) Unlike employer’s paychecks, unemployment taxes aren’t automatically withheld. Recipients have to register – and even if they do, federal taxes are only withheld at a flat rate of 10 percent of the benefits. While the new tax break will provide a cushion, some people might still owe money to the IRS or certain states. Continue reading.

I worked from home this year. Can I make the home office deduction?

Probably not, unless you are self-employed, an independent contractor, or a gig worker. The revision of the tax law at the end of 2019 removed the home office allowance for employees from 2018 to 2025. “Employees who receive a paycheck or W-2 solely from one employer are not entitled to the allowance, even if they are currently working from home. Said the IRS. Continue reading.

How does the family leave the credit work?

The self-employed can take paid foster leave if their child’s school is closed or their usual childcare provider is unavailable because of the outbreak. This works similarly to the smaller sick pay – 67 percent of average daily earnings (for either 2020 or 2019), up to $ 200 a day. However, the care leave can last 50 days. Continue reading.

Have the rules for donating to charity changed?

Yes. This year, you can deduct up to $ 300 for charitable donations even using the standard deduction. Previously, only those who made a breakdown could claim these deductions. Donations must be made in cash (such as checks, credit cards, or debit cards) and must not contain any securities, household items, or other property. For 2021, the withdrawal limit for joint applicants will double to $ 600. Itemizer rules have also become more generous. The charity donation limit has been removed so that individuals can contribute up to 100 percent of their 60 percent gross adjusted income. However, these donations must go to charitable organizations in cash. The old rules apply, for example, to contributions to funds advised by donors. Both provisions are available until 2021. Read more.

Since Blender had taken out a loan for the paycheck protection program, it was initially not eligible for the withholding balance, but Mr. Lind now plans to apply for it for two quarters last year. The credit “will really help us keep our employees when we get back to business,” he said.

However, extracting most of the eligible money from the loan is complicated because of the way it interacts with PPP proceeds – and the Internal Revenue Service has not yet provided detailed instructions.

“There are just a lot of nuances in the loan,” said Andre Shevchuck, partner at accounting firm BPM. “We have instructed many customers to first check with their payroll clerk about how the rubber hits the road. It can also be useful for companies to speak to a CPA or a lawyer.”

The self-employed are usually not entitled to unemployment benefits, but the CARES Act has extended their benefits. Ms. Holcomb became unemployed when her contract job temporarily eliminated her working hours.

However, some who have raised the money face a tax time shock: the payments are taxed as income. States are supposed to offer recipients the option to withhold federal taxes, but in their struggle over a spate of claims, some states have not – and many people faced with urgent bills and reduced incomes turned down the option. Century Foundation researchers estimate that less than 40 percent of unemployment benefits were withheld from taxes in the past year.