‘Worst year in history’: this year, the tax season in RI is full of uncertainties
The possibility of taxes on the very relief that helped people get through the pandemic has raised alarm bells in the business community and among worker advocates.
“It sounds like such a slap in the face,” said Sarah Bratko, lobbyist for the Rhode Island Hospitality Association. “Everyone always talks about helping the restaurant industry and other small businesses, but when the going is good we are the first to tax.”
Tax season is normally a busy time no matter where you live. But the confusion and uncertainties around the 2020 taxes have been particularly difficult, especially in Rhode Island. A new governor, a massive influx of federal relief dollars, and a lot of financial hardship from the pandemic have people scrambling as the May 17 tax filing deadline approaches.
“Any CPA, they’ll tell you it’s the worst year ever,” said Melissa Travis, president and CEO of the Rhode Island Society of Certified Public Accountants. “I’ve never seen anything like it, where an entire industry is brought to its knees.”
First, there is unemployment insurance.
A record number of people were unemployed last year and these benefits get by. People who were briefly laid off also got unemployment checks. To get the economy going, the federal government first added $ 600 to each weekly check, an amount that fluctuated during the crisis and recently stood at $ 300 per week.
Unemployment money is normally taxed by the federal government and the state government. But 2020 hasn’t been a normal year, so Congress, by passing the US bailout in March, exempted the first $ 10,200 in unemployment benefits from taxation in 2020. This applies to people. who have less than $ 150,000 in adjusted gross income.
But Rhode Islanders must include all unemployment benefits as income on their tax returns, even if they don’t have to include the first $ 10,200 on their 2020 federal taxes.
The backlash came quickly, and from both sides of the political aisle. The Rhode Island Manufacturers Association said the state should follow the federal government’s lead in taxing unemployment benefits. State Representative Charlene Lima, Vice President and Democrat for Cranston, and State Representative David Morales, a progressive activist and Democrat of Providence, plan to introduce legislation on April 6 that would force the issue . They already have 60 co-authors, the vast majority of the 73 chamber members.
“So many people have suffered from this pandemic and they need all the financial help they can get,” Lima said in an interview. “Some of these people are still unemployed.”
Morales said many people believed Rhode Island would follow federal guidelines on the matter. He intends to introduce a bill on April 6 that would force the problem. They already have 60 co-authors, the vast majority of the 73 chamber members.
Not taxing the first $ 10,200 “won’t hurt our state budget, given some of the federal aid we will receive as part of the US bailout,” Morales said.
The problem affects many residents of Rhode Island. In 2020, the state received 294,070 regular unemployment claims and 298,673 applications for unemployment assistance in the event of a pandemic, according to the Ministry of Labor and Training. (This could include duplicates, as they are based on the original applications filed.)
According to CNBC, Rhode Island is one of 13 states only this does not in one way or another exclude unemployment insurance from state taxes.
The deadline changes have added to the confusion, according to Rhode Island CPAs. The federal and state governments have extended the deadline for filing personal income tax returns from April 15 to May 17, but have not moved other filing or payment dates, so many small businesses must yet file the estimated first quarter taxes on April 15.
“It’s better to extend the deadline for everything that’s owed or not extend it at all,” Laura H. Yalanis, CPA and Director of Tax Services at Kahn, Litwin, Renza, said in an email.
Then there are the PPP loans.
The federal program has kept businesses afloat during last spring’s economic lockdowns, ensuing restrictions and the winter “break”. Loans become forgivable grants if they are used the right way and if companies keep a certain number of employees on the payroll.
But Rhode Island businesses may have to pay state taxes on that money – or, at least, some of it.
In his budget proposal, Gov. Dan McKee proposed taxing forgivable PPP grants over $ 150,000.
This means that if a small business received $ 149,000 in P3 grants, it would not be taxed at all. If they received $ 151,000, the first $ 1,000 would be taxable.
The move would raise more than $ 60 million, according to McKee’s budget.
McKee also added a caveat: depending on what the state gets in the form of federal stimulus dollars, he would propose to the General Assembly to remove this tax hike.
The state is receiving more stimulus thanks to the US bailout, but is still working on the details, spokesman Robert Dulski said.
“Before making a decision, the administration must complete its review of the American Rescue Act, await advice from the federal government and work with the legislature,” Dulski said in an email.
Larry Berman, a House spokesperson, said in an email: “President (K. Joseph) Shekarchi is aware of the proposal and will await testimony provided at a House Finance Committee hearing and normal due diligence conducted by the committee. ”
Greg Paré, a Senate spokesperson, said: “As this is a new matter for the Senate, the Speaker of the Senate is eagerly awaiting the Finance Committee hearing on this proposal and hearing the small businesses that could potentially be affected. ”
Commercial interests are concerned.
“We definitely need to better understand how any new tax would be calculated,” said Rick Simone, president of the Federal Hill Commerce Association, in an email. “In the minds of most small business owners, they weren’t preparing to be taxed on P3 funds separately from existing taxes. We also encourage the governor to consider increasing the amount of funds considered tax exempt to $ 250,000 to truly support our small businesses as they slowly begin to recover.
The uncertainty in the meantime has been so pronounced that State Representative Carol Hagan McEntee introduced a bill to exempt canceled PPP loans from state taxes.
“I got calls from a lot of companies,” McEntee, a Democrat from Narragansett, said in an interview. “They are all very upset. You can’t ask these companies to cough up that money. They don’t have it. They were told to spend it.
Travis, the head of the CPA group, is also vice president of the Rhode Island Business Coalition / Rhode Island Industry Alliance. She said people at all levels of business in Rhode Island are concerned about what is happening with P3 taxes and unemployment. But they also believe that McKee is fighting for their interests.
“We realize he’s pro-business,” Travis said.
Joe and Esther DeQuattro, owners of Italian restaurants Massimo and Pane e Vino, said the PPP money was a big help. In the first round, Pane e Vino received $ 225,000 and Massimo received $ 390,000, they said. They used that money to keep paying people and to stay afloat until the spring. Each restaurant has a few dozen employees.
“We did it for goodwill, to keep morale up, for the community, so they felt like we were still there,” Esther said. Taxing canceled PPP loans would be “a bad deal and a bad decision,” she said.
Joe DeQuattro called the proposal a “punch in the guts”.
“It wouldn’t be a pleasant situation,” he said.