February 24, 2021

New Emergency RELIEF Act Provides Over $1 Billion Intended to Counter Pandemic Effects

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Briefly, among other provisions, the RELIEF Act provides:

  • an alternative vendors’ credit against the gross amount of sales and use tax;
  • certain modifications to the Pass-through Entity (PTE) tax election in the SALT workaround context;
  • an exclusion of fiscal years 2020 and 2021 from the lookback periods used to determine employer unemployment insurance;
  • authorization for Maryland’s Department of Commerce to forgive certain equity participation investment program (EPIP) grants made to businesses during the pandemic.
  • direct, state income tax free Economic Impact Payments (EIPs) for low-to-moderate-income Marylanders claiming the state earned income tax credit in certain tax years;
  • a repeal of state and local income taxes on unemployment insurance benefits received by certain individuals;
  • a Maryland state income tax exemption applicable to certain pandemic-relief loan forgiveness and payments (i.e. federal, state and local grants and loans)received by a person;
  • unemployment determination grants; and
  • increased State Refundable Earned Income Tax Credit (EITC)
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On February 15, 2021, Maryland’s Governor Larry Hogan signed the bipartisan emergency stimulus and tax relief package, the “Recovery for the Economy, Livelihoods, Industries, Entrepreneurs, and Families Act” (RELIEF Act) —in excess of $1 billion—intended to provide relief from the adverse pandemic effects endured by small businesses, individuals suffering job loss, and working families.¹ Since Governor Hogan specifically introduced the RELIEF Act in January of 2021 as “emergency legislation,” it became effective upon enactment.

Although the RELIEF Act is primarily focused on helping individuals, our business clients should especially note the new law’s provisions intended to help tens of thousands of qualified businesses survive the pandemic.² If you are wondering what these provisions are and whether or not your business qualifies—keep reading and contact us with further questions or concerns.

Significantly, according to Governor Hogan the “RELIEF Act offers a real lifeline to those hardest hit people who are struggling to get by and small businesses desperately trying to stay afloat.”³

A Closer Look at the New Relief Provisions

A. Relief for Businesses

1. Vendors’ Alternative Credit

Per the RELIEF Act, qualified vendors now have an alternative credit against the gross amount of sales and use tax they owe. The alternative credit equals the lessor of $3,000 or the total sales and use tax collected in the month the vendor is eligible for the alternative credit. And the alternative credit is only available for the 3 consecutive months after enactment of the RELIEF Act (i.e., March, April and May of 2021). Vendors qualify if they meet all of the following:

  • A timely return is filed via the Comptroller’s bFILE system
  • The gross amount of sales and use tax due with the return does not exceed $6,000
  • The alternative credit is taken in lieu of the Tax-Gen §11-105 standard vendor credit
2. PTE Tax Election Revisions in the SALT Workaround Context

The 2017 TCJA imposed a $10,000 cap on the deductibility of state and local taxes (SALT). Effective July 1, 2020, for tax years beginning after December 31, 2019, Maryland’s Pass-through Entity (PTE) SALT deduction workaround is intended as a taxpayer relief measure in response to this cap and works as follows: (1) a PTE that is either a partnership or an S corporation may choose to be taxed at the entity level for the state income tax—electing to pay the partners’ or shareholders’ individual liability, (2) the partners or shareholders then get a credit for their share of the tax against their Maryland tax on the income.

The RELIEF Act made some revisions to this PTE election. For instance, (1) now PTEs with nonresident owners are able to participate in the PTE tax election, and (2) PTE owners should note the income addition required under Tax-Gen §10-205 (in other words, the PTE owner must add back the credit amount their income).⁴

3. Fully Excluding Fiscal 2020 and 2021 from Employer Benefit Ratios

Cognizant of the significant increase in unemployment insurance claims beginning in March of 2020, legislators drafted the RELIEF Act such that fiscal years 2020 and 2021 will be entirely “excluded from the periods of time during which one or both years would be used in determining employer benefit ratios for State [unemployment insurance] taxes.”⁵  Practically speaking, this is aimed to help employers by shielding them from dramatic increases in their unemployment taxes.

4. Equity Participation Investment Program (EPIP) Forgiveness

The RELIEF Act also authorizes the Small Business Development Financing Authority “to forgive loans from the [EPIP] by converting the loans to grants.”⁶ Loans provided under the program during fiscal years 2021 and 2022 are eligible for forgiveness. More information on how to have your loan forgiven may be obtained by contacting the Maryland Small Business Development Financing Authority.

B. Relief for Individuals

1. Direct Economic Impact Payments (EIPs)

According to the RELIEF Act, the Comptroller is required to issue EIPs to (1) taxpayers who claimed the Maryland earned income credit (EIC) in tax year 2019 and (2) taxpayers who claim the EIC in tax year 2020. These economic impact payments are exempt from the state income tax. This relief starts with immediate and direct payments -- $500 for families and $300 for individuals.

Note that according to the Comptroller, “[e]xcept as relating to child support, EIP funds are not subject to garnishment, holds, liens, or setoffs by a taxpayer’s financial institution.”⁷

The Revised Fiscal and Policy Note shares the Department of Legislative Services’ tax years 2019 and 2020 economic impact payments visual aid, as follows:⁸

2. Exemptions for Unemployment Insurance Benefits and Coronavirus Relief Payments

a. Unemployment Insurance Payments. In Maryland, until the RELIEF Act, unemployment insurance payments were subject to both federal and state income taxation. However, beginning with tax year 2020, to the extent included in federal adjusted gross income, the RELIEF Act allows a subtraction under the Maryland income tax for unemployment insurance payments made to an individual.

Note that this unemployment insurance payment relief provision via new Tax-Gen §10-208(y) stipulates that the subtraction includes the amount of the benefits paid if the individual’s federal adjusted gross income for the taxable year does not exceed either: (1) $75,000 for an individual, or (2) $100,000 for a married couple filing jointly or the IRS-defined head of household or surviving spouse.

b. Additionally, according to the Comptroller “[t]o the extent included in federal adjusted gross income, taxpayers may subtract coronavirus relief payments on their Maryland return.”⁹ Specifically, this means Coronavirus relief grants or loans applied for after March 5, 2020. Significantly, the subtraction also includes any forgiven coronavirus relief loan amounts.¹⁰

3. Unemployment Determination Grants

The Recovery Now Fund, created by the RELIEF Act, is intended to distribute certain funds to “assist Maryland enterprises affected by the COVID-19 pandemic.”¹¹  Importantly, via the Recovery Now Fund, individuals may receive a $1,000 grant if their unemployment benefit claim is pending determination of eligibility and the adjudication of such claim has been ongoing for at least 30 days. No grant is available, however, if the failure to determine eligibility is related to a fraud allegation.

4. Increased State Refundable Earned Income Tax Credit (EITC)

The RELIEF Act provides additional relief to those Marylanders who claim the federal EITC and who may be eligible for a refund of a percent of such amount via their state tax return. For tax years 2020 through 2022, the RELIEF Act increases the applicable percentage from 28% to 45%. Simply, qualifying taxpayers will see an increased refund.

Conclusion

Clearly, the RELIEF Act aims to offer relief to both businesses and individuals suffering adverse economic effects from the ongoing pandemic. The Comptroller assures us that “[a]dditional and updated instructions will be provided with any forms revised as a result of this legislation.”¹²  We will continue to follow these developments and encourage you to contact a tax professional who can help you best leverage the newly available relief.

If you have any questions about the RELIEF Act, please feel free to contact our team by calling (410) 497-5947 or requesting a consult online.

Footnotes

  1. You can find the complete text of the bill via the Maryland General Assembly’s website: http://mgaleg.maryland.gov/mgawebsite.
  2. For instance, Andrew Schaufele, director of the comptroller's Bureau of Revenue Estimates, has been noted as stating in a Feb.16, 2021 news conference that he expects 67,000 businesses to qualify for the Alternative Vendors’ Credit. https://www.bizjournals.com/baltimore/news/2021/02/16/how-businesses-can-get-maryland-sales-tax-credits.html.
  3. https://governor.maryland.gov/2021/02/15/governor-hogan-enacts-bipartisan-relief-act-of-2021/.
  4. Id. at 6.
  5. Fiscal and Policy Note, at 12.
  6. The Comptroller Tax Alert, at 6.
  7. The Comptroller Tax Alert (02/16/21) may be viewed in full at: https://www.marylandtaxes.gov/RELIEFAct/docs/2.16.21-748am-RELIEF-Act-Tax-Alert.pdf.
  8. You can read the Fiscal and Policy Note, Third Reader – Revised in full at: http://mgaleg.maryland.gov/2021RS/fnotes/bil_0006/sb0496.pdf.
  9. The Comptroller Tax Alert, at 3.
  10. The taxpayer must submit proof of the grant or forgiveness amount in the form of a 1099 along with Form 502LU. The Comptroller Tax Alert, at 3.
  11. Id. at 4.
  12. Id. at 1.
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