Lands on Schedule C, Part I — Line 6, other income — business income not reported elsewhere in Part I
If what you received was help for you or your family rather than a grant to a business, this article is not for you — that is a different question with a different answer. Nor is it about the other boxes on the same form: unemployment compensation (box 1), a state tax refund (box 2) or farm programme payments (box 7). This is for a self-employed person whose business received a grant from a federal, state or local government.
A grant does not feel like income. Nobody bought anything. There is no invoice and no customer, and the money often comes with a press release and a thank-you.
The IRS still counts it, and the form that tells you so stops one step short of telling you where to put it.
The short answer
| Is a government grant to a business taxable? | Generally, yes |
|---|---|
| A federal grant | Taxable unless the law that created it says otherwise |
| The form | 1099-G, box 6 — "taxable grants" |
| Where the form says it goes | Nowhere |
| Where it lands | Schedule C, line 6 — business income not reported elsewhere |
| Self-employment tax | Part of net profit once it is on Schedule C |
| No form arrived | Still taxable |
| When | The year you receive it, on the cash method |
What the IRS says
The clearest statement is in an IRS answer about state grant programmes for businesses:
"The receipt of a government grant by a business generally is not excluded from the business's gross income under the Code and therefore is taxable."
The Form 1099-G instructions say the same from the payer's side:
"State and local grants are ordinarily taxable for federal income purposes. A federal grant is ordinarily taxable unless stated otherwise in the legislation authorizing the grant."
Ordinarily is doing real work in that second sentence. Some programmes are excluded by the law that created them, and when one is, the authorising legislation says so. Absent that, assume the grant is income.
What box 6 is, and what it leaves out
On the recipient's copy of the form, the explanation of box 6 is one line:
"Box 6. Shows taxable grants you received from a federal, state, or local government."
Compare the line just above it, for box 5: "Include on the 'Other income' line of Schedule 1 (Form 1040)." The form tells you where box 5 goes. For box 6 it says nothing.
A payer reports some grants whatever the amount — energy grants and grants administered by a tribal government — and "other taxable grants if the total amount paid meets or exceeds the reporting threshold." Below that threshold no form comes at all. The grant is income either way; the form is only the payer's duty.
Where it goes on the return
No IRS page names grants on a particular line of Schedule C. Two IRS statements, read together, do the job:
- The grant is the business's gross income — the IRS's own words above.
- The Schedule C instructions: "Report on line 6 business income not reported elsewhere in Part I", including "Other kinds of miscellaneous business income."
A grant to the business is business income, and nothing else in Part I is for it — which is what line 6 describes. Because no IRS page puts the two sentences together for you, confirm the placement with your preparer — it is a two-minute conversation.
Self-employment tax
Once the grant is on Schedule C, it is part of your net profit, and net profit is where Schedule SE begins. The Schedule SE instructions list the income and losses that are not included in net earnings from self-employment, and grants are not among them.
On a $10,000 grant to a sole proprietor:
| Grant, on Schedule C line 6 | $10,000 |
|---|---|
| × 92.35% — the amount subject to the tax | $9,235 |
| × 15.3% self-employment tax | about $1,413 |
| Income tax | at your own rate, on top |
The grant does not change how the things you buy with it are treated. An expense is still deducted as an expense; equipment still follows its own rules — the de minimis election or section 179. The grant is counted on one side and the spending on the other.
When it counts
On the cash method, Publication 334 says to "include in your gross income all items of income you actually or constructively receive during your tax year." The year the money arrives, not the year the award letter did.
If you have to pay some of it back
Many grants carry conditions: stay open for a period, keep a headcount, spend it on a named purpose. Miss one and the programme can ask for money back — sometimes after you have reported the grant as income. Repaying income you already reported has its own rules, and the amount decides which ones apply.
What to keep
- The award letter, with the programme's name and its conditions.
- The date the money arrived — that decides the year.
- The Form 1099-G, if one comes, checked against what you received.
- What the grant paid for, since the spending is deducted under its own rules.
- Any repayment, with the date and the reason.
A grant is a gift from the programme's point of view. From the tax code's, it is income your business received.
Common questions
Is a state small business grant taxable?
What about a federal grant?
What does box 6 of Form 1099-G mean?
Where does the grant go on my return?
Do I owe self-employment tax on it?
I didn't get a 1099-G. Is it still taxable?
When is it income — when awarded or when paid?
The grant had conditions and I had to pay some back. Now what?
This article is for educational purposes only and does not constitute tax, legal, or financial advice. Consult a qualified tax professional about your situation.