The IRS provided guidance earlier in the year that the income provided to businesses from the CARES Act is generally taxable. INCOME TAX FEDERAL RULES DETERMINE WHETHER GRANT IS SUBJECT TO INCOME TAXESĪ grant is likely taxable as income for most recipients, but each grant has its own rules and may have exclusions from tax in some cases. This means that most small business grants provided through funds made available through the CARES Act are not included in gross receipts. Receiving a grant would normally not be considered under gross receipts unless the receipt of the grant required the recipient to perform a transaction, such as performing services. MOST GRANTS RECEIVED THROUGH CARES ACT FUNDING ARE NOT SUBJECT TO GROSS RECEIPTS TAXįor an amount of money to be considered as gross receipts, the payment must be the result of an activity within the definition of gross receipts. Under current guidance from the IRS, PPP loan forgiveness is not considered canceled debt income and is therefore not taxable income in New Mexico. Corporate income tax is based upon the federal taxable income before net operating loss and special deductions. Personal income tax is determined by the federal AGI and then by allowing the standard or itemized deductions. In New Mexico, both personal and corporate income taxes are based on reported federal income and conform to the federal rules to determine if these loans are taxable. INCOME TAX FEDERAL RULES DETERMINE WHETHER A PPP LOAN IS SUBJECT TO INCOME TAXES This holds true even if the loan was forgiven. PPP funding is a loan and therefore does not meet the definition of gross receipts found in Section 7-9-3.5 NMSA 1978. PPP loans were created by the CARES Act to allow businesses to continue to pay their workers and some overhead expenses. PAYCHECK PROTECTION PROGRAM (PPP) LOANS ARE NOT GROSS RECEIPTS Since the payments are not included in federal adjusted gross income, they are not included in New Mexico taxable income. The Internal Revenue Service has provided clear guidance that direct payments made to individuals which are provided through the CARES Act are an advance of a tax credit for 2020 and therefore not included in federal gross income. New Mexico personal income tax is calculated based upon the federal adjusted gross income (AGI). Guidance Issued From the New Mexico Taxation & Revenue Department on Coronavirus Relief Payments ECONOMIC IMPACT PAYMENTS (EIP) ARE NOT SUBJECT TO NEW MEXICO PERSONAL INCOME TAX The measure was passed by the House and Senate and now heads to the desk of New Mexico Governor Michelle Lujan Grisham for signature, who has advocated for pandemic-related financial relief. Residents who received a Working Families Credit (WFC) for tax year 2020 and have an adjusted gross income of up to $31,200 for individuals (up to $39,000 for joint filers) would also receive a $600 refundable tax credit for the 2020 tax year. Scheduled to begin March 1, 2021, and prior to July 1, 2021, receipts of a food or beverage establishment for the sales of prepared food-or non-packaged beverages that are served or picked up at the establishment, or are delivered to customers for immediate consumption-may be deducted from gross receipts. Senate Bill 1 would create a four-month gross receipts tax deduction for several types of businesses on their sales of food and non-packaged beverages and a tax credit for individuals. New Mexico’s first session of the 55th State Legislature passed a measure that will provide coronavirus relief for bars and restaurants in the form of a four-month “tax holiday.”
NEW MEXICO GROSS RECEIPTS TAX UPDATE
New Mexico State and Local Tax Coronavirus Update Tax Holiday Legislation Passed February 24, 2021