State & Local Tax Impacts of COVID-19 for Indiana – 2021

Thoughtware Alert Published: May 03, 2021 | Updated: Aug 20, 2021
SALT GOV COVID TW - 1

Information current as of July 31, 2021.

COVID-19 has changed life across the globe. Many taxing jurisdictions are taking mitigating actions to create social distance and aid taxpayers. The following is a running list of actions by jurisdiction, which generally result in additional time to file and/or pay. Further, many jurisdictions have closed their offices to in-person use by taxpayers and suspended their audit and administrative functions. This alert doesn’t cover similar waivers from local-level taxing authorities. These developments continue to quickly evolve; check with your BKD Trusted Advisor or visit our COVID-19 Resource Center for current information as needed.

Information Specific to Indiana

  • Indiana issued guidance on the most significant income tax modifications necessary because the definition of IRC is the version in effect on January 1, 2020. Items not followed include: 1) the definition of qualified improvement property for Indiana purposes will be the current definition under IRC §168(e) without the “made by the taxpayer” language added in the CARES Act, i.e., 39-year life; 2) since 2018, Indiana decoupled from the provisions of IRC §163(j), allowing the full amount of the excess interest deduction; 3) Indiana’s overall treatment for net operating losses remains unchanged; 4) Indiana doesn’t follow the provision allowing a full deduction for business meals for amounts paid in 2021 and 2022; and 5) Indiana recognizes the 2020 federal treatment on extenders unless there’s an Indiana-specific provision requiring different treatment; however, Indiana won’t recognize the tax treatment for 2021 and later. Indiana does follow the exclusion of PPP loan forgiveness; qualified emergency financial aid grants; U.S. Treasury program management authority loans; and emergency Economic Injury Disaster Loans (EIDL) grants and targeted EIDL advances.
    • Indiana Information Bulletin #119, updated May 1, 2021.
  • Indiana is extending individual income tax filing and payment deadlines to align with the IRS deadline of May 17, 2021. All other tax return filings and payment due dates remain unchanged. Individuals who aren’t able to file by the May 17, 2021, deadline can file an extension directly with the DOR or the IRS. A timely filed extension moves the federal tax filing deadline to October 15, 2021, and the Indiana filing deadline to November 15, 2021.
    • Indiana Governor’s Announcement, March 22, 2021.
  • Indiana legislation determines adjusted gross income for state individual income tax purposes and net loss carryovers for individual income and corporate income tax purposes. The law includes measures 1) adding back an amount equal to the amount of unemployment compensation excluded from federal gross income for taxable years beginning after December 31, 2019, and before January 1, 2021; 2) providing that if an Indiana net operating loss (NOL) carryover remains for a taxable year ending after June 30, the Indiana NOL carryover is recomputed as if it applied to any previous taxable year; and 3) clarifying the NOL section expires on July 1, 2024. 
    • Indiana H.B. 1436, effective April 29, 2021, and as noted.
  • Indiana legislation updates the state income tax conformity date to March 31, 2021, which includes changes resulting from the federal CARES Act (Public Law 116-136), as modified by §206 and §207 of the Taxpayer Certainty and Disaster Relief Act (Division EE of Public Law 116-260). The legislation requires corporate income taxpayers to make an addback for the amount deducted for entertainment expense under IRC §274(n) and subtract an amount equal to the deduction disallowed under §2301(e) of the CARES Act regarding employee retention. An Indiana NOL equals the sum of the federal NOL under IRC §172, as adjusted under Indiana law; the excess business loss deduction incurred from Indiana sources; and for tax years after December 31, 2020 (previously 2017), a loss for a tax year disallowed under IRC §461(l) and incurred from Indiana sources. Personal income taxpayers will 1) for tax year 2020, add an amount for the charitable deduction claimed under IRC §62(a)(22); 2) for tax years beginning after December 31, 2019, add the amount of education assistance payments that are excluded from the taxpayer’s federal gross income under IRC §127(c)(1)(B) and deduct the interest allowable under IRC §221, if the disallowance under IRC §221(e)(1) did not apply to the payments; 3) add the amount deducted for entertainment expense under IRC §274(n); 4) for taxable years beginning after December 31, 2017, and before January 1, 2021, add an amount equal to the excess business loss of the taxpayer described in IRC §461(l)(3); 5) add an amount equal to the educational loan debt cancellation excluded from federal gross income under IRC §108(f)(5); 6) for taxable years ending after March 12, 2020, subtract an amount equal to the deduction disallowed pursuant to §2301(e) of the CARES Act regarding employee retention and IRC §3134(e); and 7) subtract the amount of an annual grant amount distributed to a taxpayer’s Indiana education scholarship account that is used for a qualified expense, to the extent the distribution used for the qualified expense is included in the taxpayer’s federal adjusted gross income. Last, the computation of the unemployment compensation deduction is changed to include the unemployment compensation excluded from the federal adjusted gross income under the American Rescue Plan Act of 2021.
    • Indiana H.B. 1001, effective retroactively to January 1, 2021, and the unemployment compensation change is retroactive to January 1, 2020.
  • Indiana issued guidance on including unemployment compensation received in 2020 on individual income tax returns. Pursuant to H.B. 1001, Laws 2021, Indiana taxpayers can’t use the federal unemployment compensation exclusion on their 2020 state tax return and that income must be added back. However, taxpayers may deduct some portion of their unemployment income on their state tax return under Indiana’s laws. Taxpayers who received unemployment income and filed their returns shouldn’t file amended returns. The state has provided a new worksheet for taxpayers to use when claiming the state’s existing unemployment compensation tax deduction on their 2020 tax return. 
    • Indiana DOR, News Release; May 4, 2021.
    • Indiana DOR, News Release; July 15, 2021.
  • Indiana issued guidance on the individual income and corporate income taxation of unemployment compensation. The measures include 1) directing the DOR to waive penalties and interest related to the inclusion of unemployment compensation earned during the 2020 taxable year excluded from federal gross income but included in state adjusted gross income; and 2) explaining the DOR can’t grant an interest waiver on amounts due after September 30. 
    • Indiana Governor, Executive Order 21-15; effective June 1 and expires June 30, 2021.
    • Indiana Governor, Executive Order 21-17; effective July 1 and expires July 31, 2021
  • Indiana announced that its previous relief from the assertion of nexus under certain circumstances in connection with COVID-19 will expire on the later of June 30, 2021, or the expiration of an existing physician’s order in place prior to June 30, 2021. The DOR previously announced that in connection with COVID-19, it wouldn’t assert nexus and the protections of the federal Interstate Income Act of 1959 (P.L. 86-272) were exceeded due to a temporary remote work assignment within the state. This relief applied only for the period in which there was an official work-from-home order issued by an applicable federal, state, or local government unit or there was an order of a physician in connection with COVID-19 or an actual diagnosis of COVID-19, plus 14 days to allow for return to normal work locations. As such, if the employee remains in Indiana after the temporary remote work requirement has ended, nexus could be established for that employer.
    • Indiana DOR, News Release; June 28, 2021.

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