On February 12, 2021, the Maryland House and Senate passed the Maryland RELIEF Act of 2021, which the governor signed into law. The Maryland COVID-19 Relief Act presents numerous relief options and tax savings opportunities both at the individual and business level that many can now take advantage of.
Maryland Small Business Relief:
Sales Tax Credit:
Small businesses can now qualify for a tax credit against the gross amount of sales and use tax due. The credit is available for any of the four consecutive months immediately following the month in which this act takes effect. The business must meet the following criteria to qualify:
- Has filed timely sales and use tax returns or consolidated returns.
- Gross amount of sales and use tax due with a return does not exceed $6,000. That means that if your gross taxable sales exceed $100,000 for the period, you are not eligible.
The maximum tax credit allowed for each month is $3,000 (totaling $12,000 for the 4 months). The credit is taken directly against the gross amount of sales and use tax due with the return.
Note that the business cannot claim the credit in the same period the business is also taking the credit allowed under Section 11-105 for the expense of collecting and paying sales and use tax.
Unemployment Tax Relief:
The executive order issued by Governor Larry Hogan on December 10, 2020, and the new RELIEF Act change the employer benefit and tax rates used to calculate 2021 employer unemployment insurance tax. By removing 2020 from the calculation, they avoid significant increases in the tax rates due to the significant uptick in unemployment benefits taken by employees last year.
Each employer’s benefit rate used to calculate the 2020 unemployment tax rate will also be used for 2021. This means any unemployment benefits paid to former employees between July 1, 2019, and June 30, 2020, will not be included in the calculation of the benefit rate or the unemployment tax rate. Employers’ 2021 unemployment tax rate will be calculated based on their pre-pandemic experience excluding the fiscal year of 2020 and instead will use fiscal years 2017, 2018, and 2019 (the definition of fiscal year being July 1 through June 30).
Taxability of Loans & Loan Forgiveness:
The Act provides that any coronavirus relief payments (including forgiven loans) are not taxable by Maryland State income taxes. The bill does not specifically mention forgiven PPP loans, but they likely fall under the category of “forgiven loans,” saving many Maryland businesses from substantial tax bills on their PPP forgiveness. This also applies to other loans and grants issued at the federal, state, and local levels. We expect more guidance after the passage of the bill, including a list of eligible grants and loans that are tax-free.
Pandemic relief issued to small businesses in 2021 and 2022 under the Equity Participation Investment Program may be converted to a grant of up to $50,000. The law allows the Maryland Small Business Development Financing Authority may forgive up to $50,000 of the financing provided in the applicable years.
The bill also creates a “Recovery Now Fund,” which allocates hundreds of millions of dollars to various assistance programs, including:
- The Maryland Emergency Management Agency
- The Office of Grants Management
- The Public Service Commission
- Neighborhood Revitalization
- The Maryland Economic Development Assistance Authority and Fund
- The Maryland Small, Minority, and Women-Owned Businesses Account
- The Maryland Tourism Development Board
The funds for the Maryland Economic Development Assistance Authority and Fund are for the following purposes:
- Providing funds for local governments to give up to $12,000 grants to restaurants, bars, and caterers that can demonstrate need
- Providing funds for local governments to give up to $25,000 grants to local hotels, motels, and bed and breakfasts (or locally-owned franchises of non-local chains). This does not include casino-hotels
- Distributing grants of up to $9,000 to businesses that do not collect sales tax and can demonstrate need
The funds for Neighborhood Revitalization are allocated to the following purposes:
- Providing funds for local governments to give aid to nonprofits that can demonstrate need and have not already received assistance from the Neighborhood Revitalization Program
- Establishing a grant program to preserve main street economies and businesses
Various parts of the fund also direct relief to local healthcare providers.
Maryland Individual Relief:
Direct Stimulus Payments:
Taxpayers who qualified for the state earned income tax credit (EITC) in 2019 or 2020 may qualify for direct stimulus checks from the Comptroller of Maryland. If you qualified for the EITC in 2019, you may be eligible for the following payments:
- $300 for individual filers
- $250 for married filing separately
- $500 for Married filing jointly, surviving spouses or head of households
If you qualify for the EITC in 2020 your payments will be as follows:
- $150 for individual filers
- $125 for married filing separately
- $250 for married filing jointly, surviving spouses or head of households
These payments will either be directly deposited into each of the taxpayers’ bank accounts or issued as checks, depending on the method of previous payments.
For 2020, unemployment benefits will not be considered taxable income. Meaning taxpayers who claimed unemployment benefits in 2020 will not be taxed on those benefits and will instead receive a subtraction from their federal AGI in the amount of benefits paid out to calculate Maryland AGI and thus Maryland taxable income and tax.
About Chloe Parker
Senior Manager, CPA, & MBA
Chloe Parker is a Manager in our Bethesda, MD office. Since joining the firm in 2011, Chloe has worked closely with entrepreneurial clients on tax, audit, and accounting issues. Chloe works across industries including government contracting, construction, manufacturing, and professional services industries.
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About Jack Ramsey
Jack Ramsey is a Finance Consultant at Ryan and Wetmore. He focuses on government contractor services as well as research and analysis of the economic, tax, and regulatory environment. Jack graduated from American University with a Bachelor of Science in Economics.
About Peter Ryan
Partner, Co-founder, & CPA
Peter T. Ryan co-founded Ryan & Wetmore in 1988 with business partner Michael J. Wetmore. Peter provides clients with the best strategies for success. His expertise extends across various industries, including small businesses. Peter obtained a Master of Business Administration in Finance from the University of Baltimore and a Bachelor of Arts in Accounting from the Catholic University of America.
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About Andrew Snigur
Andrew is a senior accountant in our Bethesda, MD office. He joined the firm in 2014, and since then has work with clients on a variety of complex tax issues. He obtained both his bachelor’s and master’s degrees in accounting from American University.