Taxable Income

State provided grants to businesses are considered taxable income. Depending on what the grant was for, you may be able to reduce the tax impact of the grant’s taxability. 

If the grant was to provide supplies or equipment, you would be entitled to a deduction equal to the amount of the grant that reimbursed you for the supplies or equipment. If the state provided you with equipment, the grant would be taxable income, but you would be entitled to a business expense deduction for the equipment either through a direct write-off or through depreciation. 

Grants to reimburse for lost revenue will fall directly to the bottom line and create a federal and state tax liability.

For more information, please contact us at 401-831-0200.

February 19, 2021

Would the state grants all be subject to SE tax?

February 19, 2021

The grant income would be combined with the other trade or business income and be subject to self-employment tax.

Generating the grant income would not be considered a separate activity. Thank you for your question.

March 3, 2021

Per the Division of Taxation

“NJEDA grants or tax credits are not subject to tax as income under the New Jersey Gross Income Tax Act. There is no specific category of taxable income that NJEDA grants or credits would fall into under N.J.S.A. 54A:5-1.

Thus, NJEDA grants and credits are not subject to tax as set forth above because New Jersey entire net income is the same as federal entire net income for purposes of the New Jersey Corporation Business Tax and such grants are excluded from federal entire net income.

This exempt income is not reported on a New Jersey Gross Income Tax or Corporation Business Tax return.”

What do you think of this? I received this in an email. They also said they would not be sending out 1099s

March 17, 2021

Sorry for the delay with our response. We would need to know the specific state grant to determine if it is subject to federal taxation which would then impact state taxation.

May 1, 2021

What about a Working Washington 3 grant (washington state)?

May 10, 2021

Being a regional New England accounting firm, we are not familiar with Washington State grants unfortunately. Perhaps the Washington State Small Business Development Center or the Washington Society of Certified Public Accountants could help with that information.

May 4, 2021

I understand that the NC MURR grant is taxable but would it be taxable in the year it is approved or the year that it is received?

May 4, 2021

Assuming the taxpayer is on the cash basis, the grant would be taxable in the year received. We would need to know more about the grant award to know the proper treatment for an accrual basis taxpayer.

May 10, 2021

Why do I have to pay $2,500 tax on a $60,000 loan from the IRS?

May 10, 2021

We would need more information regarding a loan from the IRS; the IRS doesn’t give loans, but it may have come from another governmental agency.

A loan would require you to pay back the amount borrowed and would not be included in taxable income.

If it was a grant, the grant may be included in taxable income. The tax paid on a grant depends on your tax bracket. Your tax bracket is determined based on all your sources of income reduced by eligible expenses.

Without knowing your tax bracket, unfortunately we can’t calculate the tax due on a grant. Remember a loan is not taxable.

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