Due to the numerous questions received from our members regarding the tax treatment of various COVID-related relief provided by Federal and State Governments, MSCPA sent an inquiry to the MS Department of Revenue to request guidance on how MDOR interprets the taxability of such COVID-related relief and whether the related expenses would be deductible. MDOR has responded with their positions on these items as follows:
Taxability of receipts and deductibility of expenses related to COVID relief:
- PPP Loan Forgiveness – Legislation was passed last year to make forgiven loans nontaxable and to allow for the deduction of expenses paid with the loan.
- EIDL Advances – MDOR has advised these advances are excluded from income in Section 27-7-15(4)(ll), but does not believe there is a provision to allow the deduction of the expenses paid with the EIDL Advances.
- EIDL loans not becoming part of a PPP loan – MDOR recognizes EIDL loans would not be income to the taxpayer as they are loan proceeds, and therefore, any expenses paid with these proceeds would be deductible.
- EIDL loans that become part of a PPP loan and are subsequently forgiven – MDOR recognizes that to the extent these EIDL loans become a part of a PPP Loan and are subsequently forgiven, the forgiveness of these loans would not result in taxable income to the taxpayer. Further, MDOR has recognized that any business expenses paid with these proceeds would be deductible.
- MS COVID 19 Business Relief Payments ($2000 payments) – MDOR has advised that these relief payments would be nontaxable income to the taxpayer and any expenses paid with these proceeds would be deductible provided that such expenses are deductible otherwise. The relief payments were to compensate for the initial compliance with the Governor’s COVID Proclamation of March 14, 2020.
- MS Rental Assistance Payments (payments to landlords for lost revenue) – MDOR has advised that these grants are nontaxable income to the recipients but believes the expenses paid with these payments are not deductible for Mississippi purposes.
- Department of Health & Human Services (HHS) COVID 19 grants – MDOR has advised these grants are taxable income for MS income tax purposes and believes the expenses paid with these proceeds are deductible, consistent with the Federal treatment.
- MS Back to Business (B2B) grants – MDOR has advised these grants are nontaxable income to the recipients but current law provides that the expenses are not deductible at this time. HB1446 will allow the expenses to be deducted.
Deduction for B2B MS Grant Program eligible expenses (EIDL advances and MS rental assistance payments):
HB1446 passed the House 2/24. Received in the Senate 2/25. Referred to Senate Finance Committee 3/9. Voted out of Committee 3/11 back to the Senate floor.
The legislative deadline required original action on appropriations and finance bills on the floor opposite of the originating chamber. If that did not happen, the bills were dead. HB1446 was voted out of the Senate with a date amendment and is in conference to work out the final product in a conference report
as requested by MSCPA.
HB1446 would allow deduction for Back to Business (B2B) Mississippi Grant Program eligible expenses. MSCPA has requested amendments to the bill to allow the deduction of expenses on EIDL advances and MS rental assistance payments currently not deductible.
Members are encouraged to contact their Mississippi Legislators to express the need and urgency for these amendments that will result in taxpayers getting the full benefits of the COVID-19 relief, and so that returns can be filed. Consistency in tax treatments will, in turn, benefit tax preparers.
Early distributions from Qualified Accounts exempt from Federal 10% penalty due to the COVID exclusion:
MDOR has advised that early retirement account withdrawals are taxable for MS State income tax purposes, and further that there is no provision to allow the income to be spread over 3 years. If a taxpayer repays the distribution during the time period allowed, an adjustment can be made for the amount repaid on Schedule N of the Mississippi income tax return.
Federal unemployment exclusion:
The American Rescue Plan Act enacted on March 11, 2021, provided an exclusion from income of up to $10,200 of unemployment compensation paid in 2020. MSCPA has inquired from the MDOR of whether they believe current MS law would follow this exclusion. The MDOR has advised it is their understanding the change promulgated by the American Rescue Plan Act would not affect the taxation of unemployment benefits for Mississippi income tax purposes. Therefore, according to MDOR, the full amount of unemployment benefits should be included in taxpayers’ adjusted gross income for Mississippi purposes.