Paycheck Protection Program
- Paycheck Protection Program Loan Forgiveness. The amount of loan forgiveness under a Paycheck Protection Program (“PPP”) loan is not taxable for state income tax purposes to the extent the amount ...
- Expenses Deducted Under a Forgiven PPP Loan. For N.C. ...
- Examples. Example 1: Taxpayer is a business filing as a C-Corporation. ...
- Additional Resources
Full Answer
Which states are taxing PPP loan forgiveness?
Nov 18, 2021 · When PPP loan forgiveness is granted To the extent such tax-exempt income resulting from the forgiveness of a PPP loan is treated as gross receipts under a particular federal tax provision, Rev. Proc. 2021-48 applies for purposes of determining the timing and, to the extent relevant, the rules for reporting of such gross receipts.
How will the PPP loan forgiveness affect taxes?
Dec 15, 2021 · Revenue Procedure (Rev. Proc.) 2021-48 offers taxpayers three options to report amounts that are excluded from gross income (tax-exempt income) in connection with the complete or partial forgiveness of PPP loans. The tax-exempt income may be reported as received or accrued: as eligible expenses are paid or incurred,
Is the amount forgiven from PPP loan taxable?
Sep 03, 2021 · PPP loan forgiveness amounts are not included in taxable income. Further, the tax treatment of forgiven, normally deductible expenses incurred during the covered period is as follows: A PPP borrower can deduct eligible expenses to the extent that those expenses were paid from the proceeds of a PPP loan that was subsequently forgiven.
How to handle PPP loan on tax return?
Nov 18, 2021 · Rev. Proc. 2021-48 covers the timing of receipt of PPP forgiveness tax-exempt income. Taxpayers may treat such income as received or accrued when either (1) expenses eligible for forgiveness are paid or incurred; (2) an application for PPP loan forgiveness is filed; or (3) PPP loan forgiveness is granted.
Impact of PPP Loan Forgiveness on Deducting Eligible PPP Expenses
Initially, the IRS disallowed deductions for expenses used to establish PPP loan forgiveness. The CCA also changed the tax treatment for these expenses. It specifically made those expenses deductible.
Timing Considerations: Basis and At-Risk Limitations
Loan forgiveness increases tax basis, at least in the context of pass-through entities (partnerships and S corporations where taxes are paid at the individual level, not the entity level).
Impact of Loan Forgiveness on State and Local Taxes
From a state and local tax perspective, it is possible that PPP loan forgiveness may give rise to taxable income. However, an increasing number of jurisdictions have ruled they will conform to the federal treatment regarding the non-taxability of PPP loan forgiveness and not subject the forgiveness to state income tax.
Rev. Proc. 2021-48: Timing issues
Rev. Proc. 2021-48 covers the timing of receipt of PPP forgiveness tax-exempt income. Taxpayers may treat such income as received or accrued when either (1) expenses eligible for forgiveness are paid or incurred; (2) an application for PPP loan forgiveness is filed; or (3) PPP loan forgiveness is granted.
Rev. Proc. 2021-49: Allocation issues
Rev. Proc. 2021-49 prescribes how partners and partnerships may allocate among partners under Sec.
Rev. Proc. 2021-50: Amended returns
Rev. Proc. 2021-50 allows eligible BBA partnerships to file amended Forms 1065 and issue amended Schedules K-1 for the above purposes for tax years ending after March 27, 2020. These amended returns and Schedules K-1 must be filed or furnished on or before Dec. 31, 2021.
When will PPP loans be forgiven?
Therefore, most borrowers’ PPP loans will not be officially forgiven until 2021. Loans of more than $2 million received by some borrowers may not be forgiven until 2022, as the SBA will be auditing the loans to ensure that the borrowers qualified for a loan to begin with and spent the loan proceeds on permitted expenditures.
What are the consequences of PPP loan forgiveness?
State and Local Income Tax Consequences of PPP Loan Forgiveness. While the federal income tax consequences of PPP loan forgiveness are now largely resolved, state and local taxes are another matter. All but a few states directly tie their income tax laws to the federal tax code in some way, and they tend to do it in one ...
How long does it take to get a PPP loan forgiven?
A borrower who wants to have their loan forgiven must apply for forgiveness within 10 months of the end of their loan’s “covered period,” which is generally no more than 24 weeks after their loan was funded. Therefore, most borrowers’ PPP loans will not be officially forgiven until 2021.
What is PPP loan?
During 2020 many small, and even not-so small, businesses applied for and received Paycheck Protection Program (PPP) loans which, if spent on certain permitted expenditures, are forgivable and essentially become a form of government grant.
Is PPP loan forgiveness taxable income in New York?
This means that PPP loan forgiveness will not give rise to taxable income for NY state income tax purposes, and expenses paid with PPP loans remain deductible for NY individuals. Although New York City has not made any official pronouncements regarding its treatment of PPP loan forgiveness, we assume that it will follow the federal treatment.
Does PPP forgiveness affect income tax?
Consequently, rolling conformity states, by default, will not subject PPP loan forgiveness to their income tax and will allow borrowers to deduct the expenses they paid with PPP funds. “Static conformity” states adopt provisions of the federal tax code as of a certain date, but not thereafter, unless the state legislature passes a law which updates ...
Is PPP loan forgiveness taxable?
Although in March 2020 Congress stated in the CARES Act that PPP loan forgiveness income was not subject to federal income tax, the IRS took the position that since PPP loan forgiveness income was not taxable, expenses paid with a PPP loan were not deductible, essentially making the PPP loan forgiveness taxable income.
When does the borrower apply for forgiveness?
In the first scenario, the borrower applies for forgiveness in November 2020 but has not received notice of forgiveness by year-end. In the second scenario, the borrower does not plan to apply for forgiveness until 2021. In both cases, the IRS explained that the taxpayers could not deduct expenses funded with the PPP loans because there was ...
What is the safe harbor rule for PPP loans?
The IRS also released Rev. Proc. 2020-51 to provide a safe harbor rule for PPP loan borrowers where the forgiveness has been denied in full or in part.
Is PPP loan deductible for 2020?
Earlier this year, the IRS issued Notice 2020-32 which stated that expenses funded with a Paycheck Protection Program (PPP) loan that is forgiven are not deductible for tax purposes under rules designed to prevent a double tax benefit.
When will PPP loans be forgiven in Vermont?
May 5, 2021: On April 17, 2021, H.315 was enacted in Vermont, conforming to the federal tax treatment of PPP loans forgiven in 2020. However, the law currently stipulates that PPP loans forgiven in 2021 will be included in taxable income but will remain eligible for the expense deduction.
Which states have forgiven PPP loans?
In many states that currently tax forgiven PPP loans, including Arizona, Arkansas, Hawaii, Maine, Minnesota, New Hampshire, and Virginia, bills have been introduced to prevent such taxation, and Wisconsin recently acted to do the same.
What is gross receipts tax?
A gross receipts tax is a tax applied to a company’s gross sales, without deductions for a firm’s business expenses, like costs of goods sold and compensation. Unlike a sales tax, a gross receipts tax is assessed on businesses and apply to business-to-business transactions in addition to final consumer purchases, leading to tax pyramiding.
Is a PPP loan taxable?
Forgiven PPP loans are exempt from taxable income for all businesses, but the expense deduction is disallowed for publicly traded companies and businesses that did not experience a 25 percent year-over-year decline in gross receipts between 2019 and 2020.
Is PPP loan forgiveness deductible?
Therefore, on December 27, 2020, when the Consolidated Appropriations Act for 2021 was signed into law, the law was amended to specify that expenses paid for using forgiven PPP loans would indeed be deductible. As a result, most states now find they are in one of three positions.
Is a forgiven PPP loan taxable income?
Ordinarily, a forgiven loan qualifies as income. However, Congress chose to exempt forgiven PPP loans from federal income taxation. Many states, however, remain on track to tax them by either treating forgiven loans as taxable income, denying the deduction for expenses paid for using forgiven loans, or both. The map and table below show states’ tax ...
Can a PPP loan be forgiven?
Many borrowers will have these loans forgiven; eligibility for forgiveness requires using the loan for qualifying purposes (like payroll costs, mortgage interest payments, rent, and utilities) within a specified amount of time. Ordinarily, a forgiven loan qualifies as income. However, Congress chose to exempt forgiven PPP loans from federal income ...
09 Sep Differences in the tax treatment of the ERTC and PPP forgiveness
The funds received from both the PPP and the ERTC are tax-free, but there are still some differences in the tax treatment of the two programs that you need to be aware of before deciding how to proceed.
The differences in tax treatment for PPP and ERTC
The main differences in the tax treatment of the Payment Protection Program (PPP) loans and the Employee Retention Tax Credit (ERTC) are as follows:
An example of how tax treatments could affect your business
In a situation where Employers are eligible to get PPP Loan forgiveness and ERTC, they should try to take advantage of PPP Loan forgiveness instead of the Employee Retention Credit.
Overview
On September 9, 2020, Assembly Bill (AB) 1577 (CARES Act Conformity) was enacted which allowed an income exclusion for tax years beginning on or after January 1, 2020, for forgiven PPP loans.
Income exclusion
For California purposes, forgiven PPP loans are excluded from gross income.
Deductions and other adjustments
To qualify for expense deductions, basis adjustments, and lack of reduction of tax attributes related to AB 80, you must meet the following qualifications.
