COVID Tax Summary for Tax Year 2021

This summary will provide you with information on important COVID-relief provisions that were put in place to assist taxpayers with tax compliance during the emergency. You’ll find information on the Paycheck Protection Program; relief grants, subsidies, and loan grants; unemployment benefits; and employees who were working remotely.

Updated: December 5, 2022

Table of Contents

Paycheck Protection Program (PPP)

Reporting PPP loan forgiveness income.

I report my business income on a personal income tax return. My business received a Paycheck Protection Program (PPP) Loan that was forgiven pursuant to subsection (b) of Section 1106 of the Coronavirus Aid, Relief, and Economic Security (CARES) ActIs my forgiven PPP loan taxable?
 

No. Forgiven PPP loans are not taxable for personal income taxpayers, including unincorporated businesses reporting income and expenses on Schedule C, partners in a partnership, and individual shareholders of an S corporation. Recently passed Massachusetts legislation, “An Act Relative to Immediate COVID-19 Recovery Needs,” St. 2021, c. 102, excludes PPP loan forgiveness from Massachusetts gross income for 2021 for taxpayers subject to the Massachusetts personal income tax. Therefore, personal income taxpayers do not need to report these amounts.

My business is an S corporation. Do I include forgiven PPP loans when determining how the entity-level excise on net income applies to my business?
 

Yes. Include forgiven PPP loans when determining whether your business’s total receipts are $6 million or more, subjecting the S corporation to the entity-level excise on net income.  Your business must also include forgiven PPP loans in its total receipts when determining the rate of the entity-level excise on net income. If your business is subject to the entity-level excise on net income, do not include forgiven PPP loans when computing the amount of income upon which tax is due.

I report my business income on a corporate excise return (Form 355, 355U, 355S or M-990T). Is my forgiven loan taxable in Massachusetts?
 

No. For purposes of the corporate excise, Massachusetts follows the Code as currently in effect. Therefore, any amount forgiven for a corporate borrower would be excluded from Massachusetts gross income.

Can I deduct my business expenses paid with PPP loan proceeds?
 

Yes. Whether you are subject to the personal income tax or the corporate excise, if your trade or business expenses are deductible on your federal return, they are also deductible on your Massachusetts return.

Where should I report my loan liability from my PPP loan? Do I need to report the loan if I am applying for loan forgiveness?
 

Yes. Even if you are applying for loan forgiveness, the initial loan should be reported as a debt instrument and categorized as a loan liability on the balance sheet, which should be categorized as either other current liabilities or long-term Liabilities.

Generally, debt is reported on the following Forms and line numbers:

Form 355 Business/Manufacturing Corporate Excise Return: Generally, debt would be reported on Schedule A line 20, “Bonds or Other Funded Debt” or line 24 “Miscellaneous Debt”. It could also impact the Non-Income Measure Calculation.

Form 355S S Corporation Excise Return: Generally, debt would be reported on Schedule A line 20, “Bonds or Other Funded Debt” or line 24 “Miscellaneous Debt”. It could also impact the Non-Income Measure Calculation.

Form 355U Excise for Taxpayers Subject to Combined Reporting: Generally, debt would be reported on Schedule A line 20, “Bonds or Other Funded Debt” or line 24 “Miscellaneous Debt”. It could also impact Schedule U-ST Non-Income Measure Calculation.

M-990T Unrelated Business Income Tax Return: Generally, debt is not reported on this form.

Form 3 Partnership Income: Debt is reported on Form 3 based on amounts from U.S. Form 1065, line 75 (“Other Liabilities”). A disclosure should also be made on Form 3, line 53, as follows: “during the year the partnership had debt that was cancelled, was forgiven, or had the terms modified so as to reduce the principal amount of debt.”

Relief grants, subsidies and loan grants

COVID-Related Small Business Relief Received from a Program Administered by the Massachusetts Growth Capital Corporation

Learn about the taxability of COVID-related small business relief, including grants and any portion of a loan subsequently forgiven, received from a program administered by the Massachusetts Growth Capital Corporation (MGCC).

My business received small business COVID-19 relief from a program awarded by the MGCC.  Is this grant taxable income?
 

No.  COVID-related small business relief received from a program administered by the MGCC is not taxable for personal income and corporate excise taxpayers.  Recently passed Massachusetts legislation excludes COVID-related small business relief received from a program administered by the MGCC from Massachusetts gross income for taxpayers subject to either the Massachusetts personal income tax or the corporate excise. Therefore, personal income and corporate excise taxpayers do not need to report these amounts for Massachusetts purposes.    Please note that these amounts are included in federal gross income and will need to be backed out of the income reported on your Massachusetts return.

Can I deduct business expenses paid with grants awarded by the MGCC?
 

Yes. Whether you are subject to the personal income tax or the corporate excise, if your trade or business expenses are deductible on your federal return, they are also deductible on your Massachusetts return.

Other State or Municipal Relief

Learn about the taxability of other grants and forgivable loans provided by the Commonwealth or municipalities.

My business received a grant or forgivable loan from the Commonwealth or a municipality that was not administered by the MGCC.  Is this relief taxable income?
 

Yes, for both federal and state tax purposes.  Federal law generally requires that grants to businesses and cancellations of indebtedness be included in gross income.  To the extent that these grants or forgivable loans are taxable under federal law, they are also taxable under Massachusetts law. 

Can I deduct business expenses paid with a grant or forgivable loan from the Commonwealth or a municipality pursuant to a program not administered by the MGCC?
 

Yes. Whether you are subject to the personal income tax or the corporate excise, if your trade or business expenses are deductible on your federal return, they are also deductible on your Massachusetts return.

Debt Relief Subsidies Paid by the Small Business Administration (SBA)

I report my business income on a personal income tax return. My business received a loan qualifying for debt relief subsidies paid by the SBA pursuant to Section 1112 of the CARES Act.  Are these debt relief subsidies taxable income?    

No. These debt relief subsidies are not taxable for personal income taxpayers, including unincorporated businesses reporting income and expenses on Schedule C, partners in a partnership, and individual shareholders of an S corporation. Recently passed Massachusetts legislation excludes debt relief subsidies paid by the SBA pursuant to Section 1112 of the CARES Act from Massachusetts gross income for tax year 2021 for taxpayers subject to the Massachusetts personal income tax. Therefore, personal income taxpayers do not need to report these amounts.

I report my business income on a corporate excise return (Form 355, 355U, 355S or M-990T) and received debt relief subsidies paid by the SBA pursuant to Section 1112 of the CARES Act.  Are these debt relief subsidies taxable in Massachusetts?
 

No. For purposes of the corporate excise, Massachusetts follows the Code as currently in effect. Therefore, a corporate taxpayer that received such debt relief subsidies would exclude such amounts from Massachusetts gross income.

Can I deduct business expenses paid with debt relief subsidies paid by the SBA?
 

Yes. Whether you are subject to the personal income tax or the corporate excise, if your trade or business expenses are deductible on your federal return, they are also deductible on your Massachusetts return.

Economic Injury Disaster Loan Grants

I report my business income on a personal income tax return. My business received an Economic Injury Disaster Loan (EIDL) grant awarded pursuant to Section 1110 of the CARES Act or Section 331 of the Economic Aid Act.  Are these EIDL grants taxable income?
 

No. EIDL grant amounts are not taxable for personal income taxpayers, including unincorporated businesses reporting income and expenses on Schedule C, partners in a partnership, and individual shareholders of an S corporation. Recently passed Massachusetts legislation excludes EIDL grant amounts awarded pursuant to Section 1110 of the CARES Act or Section 331 of the Economic Aid Act from Massachusetts gross income for 2021 for taxpayers subject to the Massachusetts personal income tax. Therefore, personal income taxpayers do not need to report these amounts.

I report my business income on a corporate excise return (Form 355, 355U, 355S or M-990T) and received an Economic Injury Disaster Loan (EIDL) grant awarded pursuant to Section 1110 of the CARES Act or Section 331 of the Economic Aid Act. Are these EIDL grants taxable in Massachusetts?
 

No. For purposes of the corporate excise, Massachusetts follows the Code as currently in effect. Therefore, a corporate taxpayer that received such EIDL grants would exclude such amounts from Massachusetts gross income.

Can I deduct business expenses paid with EIDL grants?
 

Yes. Whether you are subject to the personal income tax or the corporate excise, if your trade or business expenses are deductible on your federal return, they are also deductible on your Massachusetts return.

Shuttered Venue Operator Grants

I report my business income on a personal income tax return. My business received a Shuttered Venue Operator grant awarded pursuant to Section 324 of the Economic Aid Act.  Are these grants taxable income?
 

No. Shuttered Venue Operator grant amounts are not taxable for personal income taxpayers, including unincorporated businesses reporting income and expenses on Schedule C, partners in a partnership, and individual shareholders of an S corporation. Recently passed Massachusetts legislation excludes Shuttered Venue Operator grant amounts awarded pursuant to Section 324 of the Economic Aid Act from Massachusetts gross income for 2021 for taxpayers subject to the Massachusetts personal income tax. Therefore, personal income taxpayers do not need to report these amounts.

I report my business income on a corporate excise return (Form 355, 355U, 355S or M-990T) and received a Shuttered Venue Operator grant awarded pursuant to Section 324 of the Economic Aid Act. Are these grants taxable in Massachusetts?
 

No. For purposes of the corporate excise, Massachusetts follows the Code as currently in effect. Therefore, a corporate taxpayer that received such Shuttered Venue Operator grants would exclude such amounts from Massachusetts gross income.

Can I deduct business expenses paid with Shuttered Venue Operator grants?
 

Yes. Whether you are subject to the personal income tax or the corporate excise, if your trade or business expenses are deductible on your federal return, they are also deductible on your Massachusetts return.

Restaurant Revitalization Grants

I report my business income on a personal income tax return. My business received a Restaurant Revitalization grant awarded by the SBA pursuant to Section 5003 of the American Rescue Plan Act.  Are these grants taxable income?
 

No. Restaurant Revitalization grant amounts are not taxable for personal income taxpayers, including unincorporated businesses reporting income and expenses on Schedule C, partners in a partnership, and individual shareholders of an S corporation. Recently passed Massachusetts legislation excludes Restaurant Revitalization grant amounts awarded pursuant to Section 5003 of the American Rescue Plan Act from Massachusetts gross income for 2021 for taxpayers subject to the Massachusetts personal income tax. Therefore, personal income taxpayers do not need to report these amounts.

I report my business income on a corporate excise return (Form 355, 355U, 355S or M-990T) and received a Restaurant Revitalization grant awarded by the SBA pursuant to Section 5003 of the American Rescue Plan Act. Are these grants taxable in Massachusetts?
 

No. For purposes of the corporate excise, Massachusetts follows the Code as currently in effect. Therefore, a corporate taxpayer that received such Restaurant Revitalization grants would exclude such amounts from Massachusetts gross income.

Can I deduct business expenses paid with Restaurant Revitalization grants?
 

Yes. Whether you are subject to the personal income tax or the corporate excise, if your trade or business expenses are deductible on your federal return, they are also deductible on your Massachusetts return.

Unemployment Benefits and Unemployment Fraud

How do I report unemployment benefits I received during 2021 in Massachusetts?

If you received unemployment benefits or pandemic unemployment benefits during 2021, you should receive a Form 1099-G, Certain Government Payments, showing the amount of unemployment compensation received. You must report all of this income on your 2021 Massachusetts Individual Income Tax return (Form 1 for residents or Form 1-NR/PY for nonresidents or part-year residents).       

Does Massachusetts allow a deduction for unemployment income for tax years 2021?

Yes, if your household income was not more than 200% of the federal poverty level you may deduct up to $10,200 of unemployment benefits from your taxable income on your 2021 tax returns for each eligible individual. Complete the Massachusetts Unemployment Deduction Worksheet to determine if you are eligible for a deduction.

How can I claim the unemployment deduction on my 2021 income tax return?

You should report all your unemployment compensation on your Massachusetts return as usual using line 8a on Form 1 (for resident taxpayers) or line 10a on Form 1-NR/PY (for nonresidents or part-year residents). If you are eligible for a deduction, you should report the deduction amount on Schedule Y, line 9. Note that for tax year 2021 there is no federal deduction. Complete the Massachusetts Unemployment Deduction Worksheet to determine if you are eligible for a deduction.

Are unemployment benefits included in the household income calculation to determine eligibility?
 

Yes. The full amount of unemployment benefits received during tax year 2021 should be included in a taxpayer’s income in determining whether the taxpayer meets the household income threshold for eligibility.

Are Social Security benefits and other MA non-taxable income (such as MA and US government pensions) included in the household income calculation?    
 

Yes. The calculation of household income follows Section 36B(d) of the Code and includes all of a taxpayer’s income, whether it is taxable or not.     

If an individual who is claimed as a dependent files their own MA tax return, are they entitled to the MA unemployment deduction?

Yes. A dependent who received unemployment compensation determines whether they are eligible for a deduction based on their own information. If the dependent’s income is at or below 200% of the federal poverty level, then the dependent would be entitled to a deduction.

The number of dependents claimed on my MA return is different from the number of dependents claimed on my federal return. Which number should I use to calculate household income for the MA unemployment deduction?
 

When completing the MA unemployment deduction worksheet, you may use the number of dependents from your MA return if that number is higher, however, the same dependent cannot be counted as part of more than one household for purposes of calculating eligibility for the MA unemployment deduction.  

On the Form 1-NR/PY (for nonresident and part-year residents), should taxpayers report all unemployment compensation even if it was not related to previous MA employment or received while a resident of MA?
 

When completing Form 1-NR/PY, nonresidents or part year residents should report as income the amount of unemployment compensation that would be taxable to Massachusetts without considering the new deduction. This would include unemployment received from any source while a resident of MA plus unemployment received while a non-resident that is related to MA employment. A deduction of $10,200 per individual, but not more than the unemployment reported by that individual, can then be claimed on Schedule Y. When determining if the nonresident or part year resident is at or below 200% of the federal poverty level the nonresident or part year resident must include all its income from whatever source including any unemployment income, whether or not it is taxable in MA.

Is a resident taxpayer who collected unemployment compensation from another state eligible for this deduction?

Yes. For a MA resident all unemployment compensation regardless of source should be reported on the Form 1. The deduction applies to any unemployment income taxable in Massachusetts and reported on Form 1. 

Does the unemployment deduction reduce my income for purposes of the Circuit Breaker Credit calculation?  

No. When calculating income for the Circuit Breaker Credit, do not exclude any amount on Schedule Y, line 9 that represents a deduction for unemployment compensation.  

What should I do if I received a Form 1099-G for unemployment compensation, but I didn’t request or receive unemployment benefits?

If you received a Form 1099-G reporting unemployment benefits but did NOT receive unemployment benefits, someone may have used your identity to falsely claim unemployment benefits. You should notify the Department of Unemployment Assistance (DUA) as soon as possible by filing a fraud report online or by calling the DUA customer service department at (877)626-6800. After DUA reviews the fraud report, they will send you a corrected Form 1099-G. Keep a copy of all Forms 1099-G with your 2021 tax records. Please note, DOR may send a notice and ask for an explanation of why the amount shown on the Form 1099-G was not reported on the return. Please contact DOR by sending a secure message through MassTaxConnect and attaching the supporting documentation from DUA. If you did not receive these unemployment benefits, this income should not be reported on your Massachusetts Individual Income Tax return. If you have already filed your Massachusetts tax return, please contact DOR after filing a fraud report with DUA and attach the supporting documentation from DUA.

What should I do in response to a notice from DOR stating I didn’t report unemployment compensation that I never received?

If you received a notice from DOR stating that you received unemployment benefits but you did not file for or receive such benefits, please contact DOR by sending a secure message through MassTaxConnect. To set up an account on MassTaxConnect, choose “Sign Up” on the homepage and create a logon. Someone may have used your identity to falsely claim unemployment benefits. Once you report this to DOR, you will have to follow up with the DUA by filing a fraud report online or by calling DUA customer service department at (877) 626-6800 to correct your account.  Failure to do so may result in future notices from the IRS and/or DOR.

Employees working remotely

For Massachusetts personal income tax purposes, Massachusetts residents are generally taxed on all income from sources inside or outside of Massachusetts.  Nonresidents are only taxed on items of gross income from sources within the Commonwealth, including income derived from or connected with any trade or business, including any employment, in Massachusetts. Employers must withhold Massachusetts tax on any wage income that is subject to the Massachusetts personal income tax whether the employee is a resident or a nonresident of Massachusetts.  

Special rules for wages or other compensation paid to employees who worked remotely (working from home or a location other than their usual work location) due to the COVID-19 Pandemic were put in place. The special income sourcing rules adopted for telecommuting employees were intended to minimize disruption for employers and employees during the Massachusetts COVID-19 state of emergency. These rules were effective for the period beginning March 10, 2020 and ending September 13, 2021. For more information about these special income sourcing rules, please see the Employees working remotely due to the COVID-19 pandemic.

Contact   for COVID Tax Summary for Tax Year 2021

Help Us Improve Mass.gov  with your feedback

Please do not include personal or contact information.
Feedback