The year 2020 was like no other, and 2021’s tax season promises to be similarly unique, at least for businesses.
Hundreds of businesses in Kodiak got relief money from the federal government to help cope with the economic shocks of the COVID-19 pandemic.
Some of that money, like the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL), has already been declared tax-free. But other money, like the Coronavirus Aid, Relief and Economic Security (CARES) Act money, is still taxable, and that’s been causing concerns in the small-business community.
When the massive law was passed in March of 2020, tax season seemed far away and legislators didn’t specify how it would be taxed. Now, tax season is in full swing and some small businesses are worried.
“People are kind of waking up to a bigger-than-anticipated tax bill, or less of a rebate than they had expected,” Kodiak Chamber of Commerce Executive Director Sarah Phillips said.
Between the city of Kodiak and the Kodiak Island Borough, local governments allocated about $3.3 million for business relief grants. That money was part of what the two governments received from the CARES Act.
It was funneled through another group, the Kodiak Economic Development Corporation, which evaluated business applications and determined how much went where.
Part of the reason for going to all the trouble, local leaders thought, was that many smaller businesses didn’t qualify or have time to apply for PPP or EIDL money. Other communities did similar things with their CARES Act money.
But those funds were not specifically earmarked for small business. They could have gone to any number of places. Just in Kodiak, the roughly $18 million went to testing supplies, school retrofitting, nonprofit aid and dozens of other places.
Since CARES wasn’t just for small businesses, lawmakers didn’t lump it in with PPP and EIDL as tax-free.
“The federal government wasn’t necessarily thinking about those extra programs when they said, ‘Of course, this relief we’ve given you is not going to be taxable income because we know you’re desperate for it,’” Phillips said.
“So many of those programs are still taxable at this time, which obviously continues to hurt small businesses while they’re down.”
The Kodiak Island Borough Assembly recently passed a resolution asking Alaska’s congressional delegation to “enact legislation that would prevent federal pandemic
relief funds from being subject to federal income tax,” according to text of the resolution.