What Businesses Need to Know About Maryland’s RELIEF Act
On February 15, 2021, Governor Lawrence Hogan, Jr. signed into law Senate Bill 496, the Recovery for the Economy, Livelihoods, Industries, Entrepreneurs, and Families Act of 2021 (the RELIEF Act or the Act). The RELIEF Act, which Governor Hogan introduced at the start of the legislation session, passed with unanimous support in the state Senate and nearly unanimous support in the House of Delegates. This bipartisan legislation will immediately provide $1.5 billion in tax relief and economic stimulus for Maryland families and businesses fighting to stay afloat amidst the ongoing COVID-19 pandemic. As Governor Hogan put it, the Act is a “real lifeline” for those who have been hit hardest by the global pandemic. This bulletin is intended to highlight the major provisions of the RELIEF Act.
Below are the key takeaways from the Act:
The Maryland Office of the Comptroller will send stimulus payments of $500 for families and $300 for individuals to taxpayers who claimed and received the Earned Income Tax Credit (EITC) in 2019. Although individuals do not need to submit any application or other paperwork to receive these stimulus payments, the taxpayer must live in Maryland as of the date of the enactment of the Act to qualify. Taxpayers will receive their stimulus payments either by mail or direct deposit. Those who do not have a current address or bank account on file with the Comptroller’s office should contact the office to update their information. The Act protects stimulus payments from being subject to garnishment, unless a garnishment relates to a child support judgment, and prevents banks or credit unions from having a lien on or rights of setoff against funds in an account traceable to a RELIEF Act stimulus payment. The stimulus payments are not, however, protected from garnishment by creditors once the funds are deposited into the recipient’s bank account. Finally, the stimulus payments are not subject to state income tax, but they are subject to federal income taxes unless otherwise exempted.
At this time, the Act excludes individuals who file taxes with individual taxpayer identification numbers (ITIN) from receiving stimulus payments. Maryland lawmakers plan to pass separate legislation in the coming weeks to provide stimulus relief for ITIN filers who meet the EITC income guidelines.
Taxpayers can check their eligibility for a RELIEF Act stimulus payments by going to the Comptroller’s website and entering their full name, last four digits of their Social Security number and adjusted gross income for tax year 2019.
The RELIEF Act will provide one-time grant payments of $1,000 to individuals whose unemployment claims are pending an eligibility determination and have been in adjudication for at least 30 days. This grant is not available, however, to individuals whose unemployment claims are pending an eligibility determination due to allegations of fraud. The Maryland Department of Labor will determine who will receive unemployment grants and must submit the list of recipients to the Comptroller’s office. The grants will be mailed directly to each selected recipient.
The unemployment grants will not be considered taxable income by Maryland although it may be subject to federal income taxes. Further, unlike the RELIEF Act stimulus payments, the unemployment grants are subject to garnishment.
- People who have lost their jobs will not need to pay state and local income taxes on unemployment benefits for tax years 2020 and 2021. However, this tax break is only available for unemployment benefits received by individuals earning less than $75,000 or couples who filed a joint return earning less than a total of $100,000.
- The Act provides small businesses with sales tax credits equal to the lesser of the amount of sales tax collected during the month in which the business qualifies for the tax credit or $3,000 per month for three months, for a total of up to $9,000. To be eligible, the business must file a timely sales and use tax return and the gross amount of sales tax due on the business’s return cannot exceed $6,000. Consequently, the credit is available only to businesses that have monthly sales not exceeding $100,000.
- Employers’ 2021 unemployment tax rates will now be calculated based on their non-pandemic operations by using the last three fiscal years (2017 through 2019) instead of the 2020 fiscal year. This relief is available to all for-profit employers.
- Small businesses and nonprofits with fewer than 50 employees can defer unemployment insurance tax payments in calendar year 2021 until January 2022. These employers will not be assessed interest that accrues for the period during which payments are deferred.
- The RELIEF Act’s loan and grant forgiveness plan would safeguard Maryland business owners against any tax increase triggered by the use of state loan or grant funds.
- The RELIEF Act amends the Maryland pass-through state tax election to provide that state taxes paid with respect to both resident and nonresident members are treated as an expense of the pass-through entity. Prior to such amendment, nonresident members could not benefit from the workaround of the $10,000 state and local tax deduction limitation provided by the election.
Recovery Now Fund
The Act establishes the Recovery Now Fund, which will be administered by the Maryland Department of Budget and Management (DBM). Governor Hogan transferred more than $300 million from the state’s Rainy Day Fund to the Recovery Now Fund, which exists to receive money to be spent on various purposes specified by the Act, including grants for volunteer fire departments and rescue squads that have lost revenue due to COVID-19; grants for utility companies to assist certain households with utility arrearages by reducing those arrearages; and grants to assist businesses in setting up an online sales framework and offering telework for employees.
Notably, the Act also authorizes, among other things:
- $10 million for grants of up to $9,000 to businesses that do not collect sales tax and can demonstrate a need for assistance. At least 15% of these grants must be distributed to disadvantaged businesses.
- $22 million to local governments to provide up to $12,000 grants to businesses that (i) are primarily engaged in activities that would be included in NAICS Codes 722320 (caterers), 7224 (drinking places [alcoholic beverages]) or 7225 (restaurants and other eating places); and (ii) can demonstrate a need for assistance. At least 15% of these grants must be distributed to disadvantaged businesses.
- $10 million to local governments to provide up to $25,000 grants to businesses that (i) are primarily engaged in activities that would be included in NAICS Codes 721110 (hotels, except casino hotels, and motels) or 721191 (bed and breakfast inns); (ii) if part of a franchise with multiple locations, are owned by a local franchisee; and (iii) can demonstrate a need for assistance.
The Maryland Economic Development Assistance Authority and Fund (MEDAAF), which is tasked with distributing the above three categories of grants, must prioritize providing grants to businesses that have not received prior funding from the MEDAAF. Beginning on the second Wednesday after the enactment of the Act, the DBM must submit biweekly reports to the General Assembly on how the money from the Recovery Now Fund is being distributed and plans to allocate the remaining balance in the fund.
Equity Participation Investment Program Grants
The Act authorizes the Maryland Small Business Development Financing Authority (MSBDFA) to forgive up to $50,000 of loans made to small businesses (as defined by U.S. Small Business Administration size standards) in 2021 and 2022 under the state’s Equity Participation Investment Program, which provides financial assistance to and enhances business ownership for socially or economically disadvantaged entrepreneurs through loans, loan guaranties and equity investments. The loans must have been for the purpose of providing such small businesses economic relief from the adverse effects of the COVID-19 pandemic.
If you have any question about the Act and its tax implications, please contact Douglas Turner Coats and Michele Bresnick Walsh.
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Douglas Turner Coats
410-576-4002 • firstname.lastname@example.org
Michele Bresnick Walsh
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February 18, 2021
Coats, Douglas Turner
Walsh, Michele Bresnick