Coronavirus Complicates MD Taxes: What To Know Before Filing

ANNE ARUNDEL COUNTY, MD — It's tax season in Anne Arundel County, but things look a little different this year. Most adult Marylanders collected stimulus checks, and many applied for unemployment insurance. Plenty of residents worked from home, and some businesses earned federal loans.

These changes raise many questions. Do you need to pay taxes on your stimulus or unemployment payments? Can you deduct your home office? Are business loans taxable? We have the answers.

Patch recently partnered with several local organizations to bring you their latest news. This guest contribution comes from the Anne Arundel Chamber of Commerce. Here's what President and CEO Mark Kleinschmidt wrote about this year's taxes:

"As 'tax season' gets underway I am hearing a lot of talk among business owners about what impact COVID-19 might have on their personal and business taxes. Just like everything, the pandemic has made tax season a bit more challenging.

Here a few topics that have come up in conversation about your 2020 taxes. These are just some highlights and each individual and business tax situation is different. So, as you get ready to file, it is a good idea to consult your accountant or tax advisor since there are a number of new provisions that can impact you.

Payroll Protection Program

If you participated in the PPP and were able to secure a loan, there is a good chance that the loan is forgivable and will not count in the calculation of revenue for your business. Initially this was uncertain but Congress has made it clear that a forgiven PPP loan is completely tax-exempt and is not taxable income. You will also be able to claim a deduction for expenses paid using your PPP funds. There are still a number of requirements that have to be met in order to have the full loan amount forgiven, so check with your tax advisor to make sure you meet all the requirements.

The COVID-19 recession caused a tremendous spike in the unemployment rate and as a result many people received unemployment checks for the first time. With the drastic increase in unemployment, the Congress realized additional financial support was needed to help the laid off or furloughed workers but to also put more money into the economy. To accomplish this a series of stimulus checks were sent out [to] taxpayers. Unemployment benefits and stimulus checks each have different tax consequences.

Unemployment Benefits

You may be surprised to find out that unemployment benefits are taxable income. Recipients have the option to have federal taxes withheld from their unemployment checks but many do not. So if you received unemployment benefits in 2020, you need to review the potential tax implications. There is a proposal to exempt unemployment benefits from Maryland state taxes.

There [is] a lot of concern that the increase of unemployment might have on a business’s experience rating for unemployment insurance rates. The state has enacted legislation that would penalize a business by increasing their rate because they had to lay off or furlough employees due to the economic consequences of the pandemic.

Stimulus Checks

The economic impact payments or stimulus checks sent to millions of Americas are not taxable income. The first round of payments was worth up to $1,200 per eligible adult and $500 per dependent; the second was worth up to $600 for each eligible household member.

Home Office Deduction

Be careful with this one. While working from home became the norm for many in 2020, few will be able to claim their new home office setup as a deduction. That’s because the home-office deduction can only be taken by businesses or the self-employed. To qualify for this deduction, a home office must be used exclusively as the principal place of business. That means the table where your kids do their homework, your family eats dinner, and you do your work does not count.

All the uncertainty surrounding COVID-19 has found its way into our tax returns and will take a little extra effort to figure out. I have mentioned a few of the tax issues that have been popping up due to the pandemic. To make sure you can take advantage of any new tax provisions and avoid problems, take the time to do a little research and talk with [your] accountant."

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• Anne Arundel Faces 'New Normal' While Bridging Out Of Recession

Have a story idea? Please contact me at jacob.baumgart@patch.com with any pitches, tips or questions. Follow me on Twitter @JacobBaumgart and on Facebook @JacobBaumgartJournalist to stay up-to-date with the latest Anne Arundel County and Prince George's County news.