IRS Updates April 12, 2021

Student COVID Emergency Aid Not Taxed

Students who received emergency financial aid grants from a federal agency, state, tribe, higher education institution or scholarship-granting organization because of the COVID-19 pandemic do not have to include these funds in their gross income. They also do not have to reduce their amount of qualified tuition and expenses by the amount of the grant, but may be eligible to claim a tuition and fees deduction or other credit on their 2020 tax return.

Unemployment Taxes To Be Recalculated

The March 11 American Rescue Plan legislation made changes to how 2020 unemployment benefits are taxed for certain taxpayers. Those who filed their tax return before this date and figured their tax based on the full amount of unemployment compensation will have their return adjusted and their tax recalculated by the IRS. For those who overpaid under the new law, refunds are expected to begin in May and will continue into the summer.

Guidance On Food & Beverage Deduction

The Taxpayer Certainty and Disaster Relief Act of 2020 (Relief Act) added a temporary exception to the 50% limit on the amount that businesses may deduct for restaurant food and beverages. The exception allows a 100% deduction beginning January 1, 2021 through December 31, 2022. During this time businesses can claim 100% of their food and beverage expenses paid to a restaurant as long as the business owner or an employee is present, and the expense is not lavish or extravagant. 

Guidance On Employee Retention Credit

The IRS has issued guidance for employers claiming the Employe Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Relief Act for the first two quarters of 2021. The guidance explains the changes, and eligible employers can now claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after December 31, 2020, through June 30, 2021. The American Rescue Plan Act expands this credit through the third and fourth quarters of 2021, with further guidance to become available.