Impacts of COVID-19 on the 2021 Tax Year
There are very few aspects of the global economy that haven’t been directly impacted by the COVID-19 pandemic. While the economy is starting to pick up speed again, policymakers, corporations, and individuals hope that 2021 will begin to feel normal. However, the long-term impacts of the 2020 recession caused by COVID-19 are not going away any time soon. The record stock market drop, and notably the measures put into place to mitigate the economic hardships’ national damage, will notably impact the 2021 tax year for individuals and companies alike.
Taxes on Supplemental Sources of Income
To ensure individuals and families could stay afloat and pay their bills amid the massive stock market drop and economic fallout, the federal government put into place several interventions. One of the interventions was the Families First Coronavirus Response Act and the CARES Act, which sent specific amounts of payments directly to individuals. These payments were intended to help families pay for rent, afford food, and other essentials during uncertain and troubling times. But when it comes time to file taxes in 2021, individuals will have to pay taxes on those funds as a source of income. Many people may not be expecting this money to be taxed and forget to factor that into what they save and have ready for tax season.
Similarly, an unfortunate record set during the COVID-19 pandemic was how many people lost their jobs and had to file for unemployment. The funds received to keep their families stable via the unemployment services will similarly be taxed as income next Spring during the 2021 tax year. Counting these taxable supplemental sources of income, as well as any additional sources of income people pieced together during their hardships like side gigs or online businesses, will be critical for the upcoming tax year.
There are plenty of new tax considerations for the 2021 tax year for businesses due to the fallout and attempts at recovery from COVID-19. Like the government providing funds to families to help bridge the gap during economic hardship, companies received opportunities for small business loans and even loan forgiveness to keep the backbone sector of the economy open. These measures were critical to maintaining open doors yet will have significant tax repercussions.
During the pandemic’s changing landscape, businesses dealt with several considerations on how they could move forward. Many companies sent employees home to work remotely, which came with new business expenses, decreases in revenue, and more. All of these measures will directly impact the tax liabilities of a business for 2021. Additionally, payroll considerations will weigh heavily on employers, particularly from those employees who have excess paid time off saved up that couldn’t be used due to travel restrictions and quarantines in place.
Uncertainty into Future Years
Lastly, it’s important to note that the 2020 stock market slump due to COVID-19 is likely to extend for years, not just into 2021. As in past recessions of this scale, businesses will take a long time to recover fully, government intervention will likely continue, and the economy’s state may be forever changed. Keeping abreast of what that means for tax liabilities will be essential for businesses operating on smaller margins.
If you’re unsure how these effects will impact your business, you should contact the trusted financial advisors at Tobin & Collins. Our financial consultants are ready and able to help you achieve your goals, so get in touch with us today to get started.