Information current as of June 30, 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 Pennsylvania
- Pennsylvania issued guidance relating to telecommuting and related tax implications. If an employee is working from home temporarily due to the COVID-19 pandemic, the DOR does not consider that as a change to the sourcing of the employee’s compensation. For nonresidents who were working in Pennsylvania before the pandemic, their compensation would remain Pennsylvania-sourced income for all tax purposes, including PA-40 reporting, employer withholding, and three-factor business income apportionment purposes for S corporations, partnerships, and individuals. Conversely, for Pennsylvania residents who were working out of state before the pandemic, their compensation would remain sourced to the other state and they would still be able to claim a resident credit for tax paid to the other state on the compensation. For a Pennsylvania employer with a nonresident employee temporarily working from home due to the COVID-19 pandemic in a state that does not have a reciprocity agreement with Pennsylvania, the Department advises that the employee’s compensation remains Pennsylvania sourced, and the employer is required to withhold on the compensation.
- Pennsylvania DOR Telework During the COVID-19 Pandemic, issued November 9, 2020, and in effect until the earlier of June 30, 2021, or 90 days after the Proclamation of Disaster Emergency in Pennsylvania is lifted.
- Pennsylvania legislation excludes the forgiveness of federal Paycheck Protection Program (PPP) loans from personal income tax. No deduction may be disallowed for an expense that’s otherwise deductible if the payment of the expense results in forgiveness of a PPP loan. In addition, the economic impact payments (stimulus checks) to individuals are excluded from personal income tax.
- Pennsylvania S.B. 109 (Act 1), effective February 5, 2021.
- Pennsylvania explained the limited carryforward of unused educational tax credits. Act 136 provides for a limited carryforward of unused educational tax credits, including the Educational Improvement Tax Credit and Opportunity Scholarship Tax Credit as a form of COVID-19 relief. A business entity may carry forward unused direct credits for two years for the credits awarded during fiscal years 2020 to 2021 and 2021 to 2022. The owners of a business entity awarded credits through a pass-through ownership can’t carry forward any credits passed through to them.
- Pennsylvania DOR, Restricted Tax Credit Bull. No. 2021-01, February 8, 2021.
- Pennsylvania released guidance regarding income tax treatment of Coronavirus Aid, Relief, and Economic Security Act (CARES Act) relief payments. For annuity funds from laborers’ unions, taxability will depend on the specifics of the distribution and fund. For coronavirus-related distributions on retirement accounts, early distributions are subject to tax. COVID-19 disaster relief payment taxability depends on the nature of the payments. Economic impact payments aren’t subject to personal income tax. Economic Injury Disaster Loans are treated as a grant not subject to tax. Grants from localities aren’t subject to tax. PPP forgiven loans aren’t taxable for personal income tax purposes, and for corporate purposes, there’s no addback to or deduction from federal taxable income. For Form 1099-C, Cancellation of Debt, lenders don’t need to file for the PPP administered by the U.S. Small Business Administration. Provider Relief Fund payments are considered nontaxable grants, and student loan debt repayments made by an employer are considered taxable.
- Pennsylvania DOR, CARES Act Relief Taxability; February 12, 2021.
- Pennsylvania has announced the deadline for taxpayers to file their 2020 Pennsylvania personal income tax returns and make final 2020 income tax payments is extended to May 17, 2021. Under Pennsylvania law, the deadline for filing state income tax returns is tied to the deadline set at the federal level. The extension means Pennsylvania will waive penalties and interest on final 2020 personal income tax returns and payments through the new deadline of May 17, 2021. Taxpayers who make estimated income tax payments should continue to do so on the same filing schedule they would normally follow.
- Pennsylvania DOR, News Release; March 18, 2021.
- Pennsylvania issued information on the individual and corporate income taxability of COVID-19 relief grants received under various programs. County block grants provided under the COVID-19 Hospitality Industry Recovery Program aren’t subject to the state’s personal income tax or corporate net income tax. Payments made to nonpublic and county nursing facilities by the Pennsylvania Department of Human Services should be treated as nontaxable grant money for personal income tax purposes. Direct relief provided under the Coronavirus Food Assistance Program to producers who faced price declines and additional marketing costs due to the pandemic is taxable as subsidies for personal income tax and corporate net income tax purposes.
- Pennsylvania DOR, COVID-19 Information; April 1, 2021.
- Pennsylvania issued individual income tax information on the Employee Retention Credit under the CARES Act. Under federal provisions, the refundable tax credit is 50 percent of up to $10,000 in wages paid by an eligible employer whose business is financially affected by COVID-19. Any reduction to the wage expense for federal tax purposes that’s a result of a credit against taxes withheld from the employee would be deductible for Pennsylvania personal income tax purposes. Any reduction to the wage expense for federal tax purposes that’s a result of a credit against the employer’s own FICA liability wouldn’t be deductible for Pennsylvania personal income tax purposes.
- Pennsylvania DOR, COVID-19 Information – Employee Retention Credit; April 5, 2021.
- Pennsylvania legislation provides temporary authority to the Department of Revenue during the state of disaster emergency to extend filing and payment deadlines set for state and local income taxes to May 17, 2021, and waive any interest, penalties, and addition to tax for failure to meet the due dates. It also authorizes the Department of Community and Economic Development to coordinate with the governing bodies and political subdivisions to extend filing and payment deadlines for the local income taxes. These subsections expire May 31, 2021. The corporate net income tax return (or extension) filing deadline is changed from 30 days after the due date of the federal return to the 15th day of the month following the due date of the federal return for taxable years beginning after December 31, 2020.
- Pennsylvania H.B. 766, effective April 22, 2021.
- Pennsylvania announced that effective July 1, 2021, the temporary income tax telework and corporate income and sales and use tax nexus guidance will end. Existing tax law will apply at that time. The temporary guidance relating to telework and related tax implications was entitled Telework During the COVID-19 Pandemic (issued November 9, 2020). The guidance waived certain residency and nexus requirements due to employees working from home in Pennsylvania during the COVID-19 pandemic. The updated guidance includes 1) a company that continues to have a Pennsylvania resident working at home in 2021 after July 1 may have corporate net income and sales tax nexus for 2021 and future years based solely on the activities of that employee; 2) the sourcing of income for resident or nonresident employees working in or outside of the state; 3) the effect on compensation withheld from an employee; and 4) the effect on certain economic development programs and tax credits.
- Pennsylvania DOR, Telework Guidance; June 17, 2021.