Information outlining the current tax implications by state has been added. Procs. year 2023. We have considered three potential sources of guidance that could apply to accounting for government assistance in the form of loan forgiveness: Guidance under ASC 405-20, Extinguishments of Liabilities and ASC 470-50, Debt Modifications and Extinguishments. Calculating state depreciation has long been a source of frustration and stress, with tax accountants going cross-eyed staring at complicated spreadsheets while under the looming threat of . o 2019 employer state and local taxes assessed on employee compensation, primarily state unemployment insurance tax (from state quarterly wage reporting forms). The intent of the PPP is to assist both for-profit and nonprofit employers in maintaining their payroll during the COVID-19 crisis. On January 6, 2021, the IRS released Revenue Ruling 2021-02 that declares its previous Notice 2020-32 superseded. Employee Retention Credit (ERC) Established by the CARES Act, the ERC provides a fully refundable tax credit which can be taken against certain employer payroll taxes. For other recent information, including federal programs such as COVID-19 Grants & Loans and PPP Loans, see this page. Changes Regarding Paycheck Protection Program (PPP) Loans. Loans forgiven under the PPP will not create taxable income to the recipient (but will provide tax basis); and; Expenses paid or accrued with PPP funds will be deductible for tax purposes. More Resources. This new law means that PPP loans forgiven in 2021 will be taxable, and business expenses paid by PPP loans can still be deducted. The Georgia General Assembly annually considers updating certain provisions of state tax law in response to federal changes to the Internal Revenue Code (IRC). Easily stay ahead of the latest state, federal, and international tax developments with expert analysis, news, and primary sources all in one place. Although the computation of Guidance under ASC 958-605, Not-for-Profit Entities, Revenue Recognition. treatment of certain CARES Act changes updated Yes Jobs credit for PPE manufacturing; On December 27, 2020, the President signed into law the COVID-related Tax Relief Act as part of the massive 5,000+ page year-end Omnibus Appropriations and Stimulus . For tax years 2020 through 2022, the NOL deduction is suspended for businesses with income of $1 million or more. So businesses that got PPP loans in the spring and summer of 2020 (so-called "first draw" loans) won't have . "The federal government will not tax forgiven PPP loans as income and neither should the state of Minnesota," said Nelson, R-Rochester. Recent Changes and Information. With the state income tax treatment of PPP loan forgiveness and the deductibility of covered expenses, however, the provisions of the CARES Act which address the treatment of PPP proceeds do not explicitly amend the IRC. Global Headquarters 3235 Satellite Boulevard Bldg 400 Suite 300 Duluth, GA 30096 USA T: +1 678-417-7730. info@primeglobal.net All businesses that took out loans of $150,000 or less would be able to maximize their deduction for state purposes. Analysis and commentary from Mark Higley, Vice-President, Regulatory Affairs. for Federal & State Taxes . AICPA PPP State Tax Treatment Chart provides guidance issued by the states on PPP forgiveness taxability and deductibility of expenses . However, some states may treat the forgiveness and expense deduction differently. So even in rolling conformity states, the state legislature may need to act separately to confirm whether they will adopt . Under the federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act), borrowers may have their loans forgiven without incurring tax liability that would normally result from discharge of debt income. 1. This tax change is effective for tax years ending after March 3, 2020 . 2019-2020, Ch. The chart below reflects the general treatment of QIP based on a state's IRC conformity. Originally, the IRS released Notice 2020-32 providing that taxpayers who receive forgiveness for a loan under the provisions of the PPP may not 'double-dip' by also deducting the amount paid out to employees as expenses if . Vermont will not tax PPP loans forgiven in 2020, but so far will tax those forgiven in 2021. State and Local Tax Weekly dated 4 June 2021. Loan proceeds received under the Paycheck Protection Program (PPP) are not taxable income, regardless if the loan was forgiven or not. By way of this alert, Michelman & Robinson, LLP goes beyond California, and in the table below, we set forth the tax treatment of the other states that have weighed in on PPP loan forgiveness. The PPP Flexibility Act, which was enacted on June 5, 2020, changed the rules so employers can still defer these taxes even after a PPP loan is forgiven. Economic Injury Disaster Loan (EIDL) Advances. Massachusetts at first only exempted the forgiven loans from corporate income tax, but not individual income tax. The Paycheck Protection Program (PPP), created as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act and extended under the Consolidated Appropriations Act, 2021, provides much-needed relief for businesses as they struggle to maintain operations and employment. Summary Chart. 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. Small Business Resiliency Tax Relief Programs State & Local Tax (SALT) Tax Season Mar 27, 2022 317.3 KB Download PPP State Tax Treatment Chart PPP State Tax Treatment Chart State response to COVID-19 50-state summary Issue 1, January 7, 2021 3 . No. State and Local Tax Weekly for 14 May 2021. Scheduling an appointment helps to reduce wait times and ensure a specialist is available to assist you. Tax Treatment Clarifications for Loan Forgiveness and Other Financial Assistance PPP State Tax Treatment Chart. With workflows optimized by technology and guided by deep domain expertise, we help organizations grow, manage, and protect their businesses and their client's businesses. Step 2: Calculate the average monthly payroll costs amount (divide the amount from Step 1 by 12). This applies to all taxpayers, whether your business is a sole . In three revenue procedures (Rev. Member Only. whose accounting period ends on December 31 would pay tax on 5/15/12 for the privilege of doing business in Texas during calendar year 2012, but the tax due would be based on the entity's business activity during calendar year 2011. (Click to enlarge) Yes, employers are allowed to defer payroll taxes (as specified in the CARES Act) from March 27, 2020, through December 31, 2020. 2020-06, Oct. 20, 2020 Idaho Specific guidance has not been issued. Visitors will be required to check-in with building security upon arrival. Most States to Treat PPP Loan Forgiveness as Nontaxable Income. Under the program, the Small Business Administration providing 100% federally insured loans for certain covered expenses. o 2019 employer state and local taxes assessed on employee compensation, primarily state unemployment insurance tax (from state quarterly wage reporting forms). Under the program, eligible borrowers can apply for and receive federally guaranteed loans to be . AB 80 expands California's September 9, 2020, law change under AB 1577. Tax & Accounting. The decision about whether to conform to federal treatment of PPP loans for tax purposes has varied from state to state. The tax treatment of Paycheck Protection Program (PPP) loans continues to be a major source of confusion for those businesses who received the loans. We suggest that you talk with your tax advisor about how the federal treatment of PPP loan forgiveness will impact you for state personal income tax purposes. Rolling - The state follows the Internal . (a) California provided a 2-year carryback through 2018. When PPP loan forgiveness is granted. Paycheck Protection Program (PPP) State Tax Treatment Chart 1 . Purpose of chart: Use this chart to determinewhether states treat Coronavirus Aid, Relief and Economic Security Act (Public Law 116-136) ( CARES Act ) Paycheck Protection Program (PPP) loan forgiveness as taxable We will continue to provide updates if . Stay on Top of Legislative Changes. Much of the treatment depends on how a state conforms to the federal Internal Revenue Code. The answer is not yet clear, and for many states it will not be clear for months. relief for state and local taxpayers in response to the COVID-19 pandemic. Use this chart to determine whether states treat PPP loan forgiveness as taxable income. The final part covers COVID-19 related federal updates, AICPA tax policy and advocacy efforts, AICPA tax resources, and AICPA resources, and other state tax resources, including the 2020 state tax filing NYC also decoupled from the increase in the IRC 163 (j) business interest expense limitation from 30% to 50% for the 2019 and 2020 tax years. Employee Retention Credit (ERC) Updated May 20, 2022. Increase to TCJA interest expense limitation Fifty percent of the deferred taxes that accumulated in 2020 . Paycheck Protection Program (PPP) State Tax Treatment Chart . Policy and Advocacy for the AICPA, from our conversation posted in early December about then-proposed changes in the tax treatment of loan proceeds from the Paycheck Protection Program, or PPP. An example would be following the Internal Revenue Code of 1986. On Feb. 18, 2021, Idaho enacted House Bill 58, updating the state's general conformity date to the Internal Revenue Code to Jan. 1, 2021, from its previous conformity date of Jan. 1, 2020. Tax Treatment. Additionally, while PPP loans aren't taxable at the federal level, state tax implications vary by state. 8 tax.thomsonreuters.com STATE AND LOCAL TA on checpoint TOOLS TOOLSOU Y CAN USE NEXUS ASSISTANT Get nexus activity for any state and business activity at a glance! Paycheck Protection Program (PPP) forgivable loans, which were used by nearly 90 percent of recreational boat dealerships for support during the shutdowns caused by the pandemic, are at risk of being included as income by some state governments, possibly making the forgiven portions taxable.. COVID Relief Program. Our simple and easy to use AICPA press release on AICPA/Harris Poll survey on state taxes and remote working. Provisions in pending legislation. States that do impose a tax on PPP loan forgiveness usually allow expenses paid with . In Minnesota, corporations are taxed at a flat 9.8 percent rate. An additional complexity at the state level is the treatment of expenses incurred when using the funds from the PPP. Imposing the state tax on the PPP funds for vulnerable rural businesses would set back their recovery. June 11, 2021: On June 10, 2021, S.B. The initial margin tax was due on 5/15/08, and was calculated based on business activity during 2007. The Department of Taxes has re-opened to the public at 133 State Street in Montpelier. Tax Status of Forgiven PPP Loans for Non-Profit Entities. Loans forgiven under the PPP will not create taxable income to the recipient (but will provide tax basis); and; Expenses paid or accrued with PPP funds will be deductible for tax purposes. federal PPP loan forgiveness No information at this time No information at this time Yes WFH . For recent information about Individual Income Taxes, see this page. Consider the Implications of Decoupling. Passed in the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020, the U.S . relief for state and local taxpayers in response to the COVID-19 pandemic. Of note, the PPP was designed to be a tax-free safety net for small businesses on the brink due to the COVID-19 pandemic, at least on the federal level. Posted on February 1, 2021. The tax year 2020 50-state summary can be found here. Generally, these loans are forgivable in full if employers retain employees at salary levels . Purpose of chart: Use this chart to determinewhether states treat Coronavirus Aid, Relief and Economic Security Act (Public Law 116- 136) ( CARES Act ) Paycheck Protection Program (PPP) loan forgiveness as taxable income. Paycheck Protection Program (PPP) Tax free forgiveness and fully deductible expenses. The issues relating to whether a business has a nexus in a state and is thus subject to tax are complex and each state views the concept of nexus differently. In addition to showing state carryback and carryforward allowances, the table shows the status of states' conformity to the CARES Act's suspension of the TCJA limit that generally prohibits NOL Section 461 (l) is applied as in effect on Jan. 1, 2020. California treatment is the same as Federal. From a state and local tax perspective, however, PPP loan forgiveness may give rise to taxable . FTB has received several questions recently regarding the deductibility of expenses paid with Paycheck Protection Program (PPP) loan proceeds when the loan has been forgiven, and whether the amount of the loan that has been forgiven enters into the calculation of the LLC fee. Ohio allows PPP-funded business expenses to be deducted from . While the PPP creates economic and tax benefits for federal tax purposes, it also poses questions for state taxing authorities. Provisions in pending legislation. 3. The next part of the chart details each state or jurisdiction's guidance on tax filing and payment relief in alphabetical order by state. June 22, 2021. As 2020 came to a close, Congress clarified the tax treatment of Paycheck Protection Program (PPP) loans. The taxpayer submitted the Loan Forgiveness Application in 2020, or intends to . The law is effective retroactively to Jan. 1, 2021. Also, use this chart to determine whether a state allows the deductibility of expenses paid with PPP loan amounts as provided for federal tax purposes by the . 3 was enacted in New Hampshire, fully conforming the state to the federal tax treatment of forgiven PPP loans by newly excluding forgiven amounts from taxable income under the business profits tax, New Hampshire's corporate income tax. Notice 2020-32 stated expenses paid with PPP loan proceeds expected . However, you can only deduct up to $100,000 in expenses related to your PPP loans. The ERC is not an income tax credit; it is a payroll tax credit and is ultimately reflected on Form 941. Obviously, the state would lose revenue if it allows the loans to be entirely tax-free. Federal. (b) State imposes a limit on loss carrybacks: Delaware ($30,000), Idaho ($100,000), West Virginia ($300,000). Also, use this chart to determine whether a state allows the . This chart doesn't consider any state-enacted changes to follow or decouple from the federal treatment enacted by TCJA or the CARES Act, nor does it address state modifications related to bonus depreciation. II. On April 15, 2020, the Wisconsin legislature passed, and Governor Evers signed, Assembly Bill 1038, which conforms to certain provisions of the CARES Act, including the tax treatment of PPP loans. Twenty-nine state tax departments responded they will follow the federal treatment of such forgiveness or . The Paycheck Protection Program (PPP) was originally created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted March 27, 2020, [1] to provide cash flow assistance to small businesses impacted by the COVID-19 pandemic. Paycheck Protection Program (PPP) State Tax Treatment Chart . In the text of the bipartisan omnibus bill [PDF 8.43 MB] (5,593 pages), Congress has included language to clarify its original intent and to provide that the PPP-funded expenses of borrowers would be deductible for federal income tax purposes, regardless of the fact that the PPP loan is or will be forgiven. Specifically, each state that has [] Specific guidance has not been issued. Many states follow the federal tax treatment of Paycheck Protection Program (PPP) loan forgiveness. Paycheck Protection Program (PPP) Tax Treatment . Bringing together state tax tools, chart builders, and primary sources, you can streamline all your work on our comprehensive, state-focused platform. 2. Texas: PPP loans are taxable for the state franchise tax Utah: Does not exclude forgiven loan amounts from taxable income Vermont: PPP loans forgiven in 2020 were not taxable, and business . Nebraska On 26 May 2021, Nebraska enacted legislation reduc ing its top corporate income tax rate. The chart below shows each state's tax treatment of PPP loan forgiveness and related expenses. ln an uncommon occurrence these days, many Republicans and Democrats are on the same page regarding what businesses need. Virginia: Forgiven PPP loans are not taxable in Virginia, and you can deduct your business expenses paid by your PPP loans. While it is excluded from taxpayers' gross income, tax-exempt income . COVID-related Tax Relief Act. Forgiven PPP loans are not considered cancellation of debt income, and as such, you should not report these loan proceeds on your tax return. The rules for forgiveness related to PPP loans were clarified in the Consolidated Appropriations Act signed into law this past December, which explicitly states that amounts forgiven under the PPP are not taxable for federal income tax purposes. With the state income tax treatment of PPP loan forgiveness and the deductibility of covered expenses, however, the provisions of the CARES Act which address the treatment of PPP proceeds do not explicitly amend the IRC. As of the date of publication: These states have issued conformity guidance in line with the federal treatment of excluding forgiven PPP loans from qualifying as taxable income as well as allowing deductions for expenses paid . . AB 1577 (Stats. In the text of the bipartisan omnibus bill [PDF 8.43 MB] (5,593 pages), Congress has included language to clarify its original intent and to provide that the PPP-funded expenses of borrowers would be deductible for federal income tax purposes, regardless of the fact that the PPP loan is or will be forgiven. There are three types of conformity: Static (or fixed date) - The state chooses the Internal Revenue Code at a point in time. Choose a Powerful Software Solution. Step 2: Calculate the average monthly payroll costs amount (divide the amount from Step 1 by 12). The following information details recent changes in tax laws, including federal laws that affect Utah taxes. AB 1577 excluded from gross income, for state income tax purposes, any forgiven loan amount that's related to PPP for taxable . Enabling tax and accounting professionals and businesses of all sizes drive productivity, navigate change, and deliver better outcomes. Differences Between State Tax Regimes and the Federal Determination of Taxable Income The state income tax treatment of a transaction typically derives from state law conformity to the federal treatment as modified by state-specific statutes, administrative guidance, and case law interpretations. Passive . September 1, 2021: The Employee Retention Tax Credit has been extended through 2021 as a result of the American Rescue Plan. Step 3: Multiply the average monthly payroll costs amount from Step 2 by 2.5. This resource is for members only. While the treatment of the forgiven PPP loans may be clear for federal income tax purposes, the state treatment of the forgiven loan amounts and related expense deductions are still evolving. It is conceivable that state . Importantly, state tax treatment of PPP-funded expenses will continue to vary depending upon each jurisdiction's conformance to the Internal Revenue Code; the Coronavirus Aid, Relief, and Economic Security (CARES) Act; and the Consolidated Appropriations Act, 2021. Under the program, eligible borrowers can apply for and receive federally guaranteed loans to be . PPP State Tax Treatment Chart . The state recently expanded the law to cover both types of income tax. Tax Status of Forgiven Federal Loans Unrelated to PPP Used to Pay for Deductible Expenses. In the 2022 Session, the General Assembly adopted House Bill 1320. 39) provides that any deduction or . Consider an S Corp with $3M in each of its AAA, PTI, E&P, and OAA accounts, and $10M of PPP loan forgiveness income. Posted on: February 1, 2021 / in COVID-19. New Jersey On 11 May 2021, New Jersey enacted legislation permitting businesses to deduct expenses paid with forgiven PPP loans. The question for recipients now is: how will the states treat PPP loans for tax purposes? State-defined. AICPA is also updating a State Tax Due Dates Updated for COVID-19 Relief and has developed a PPP State Tax Treatment Chart (available to AICPA Tax Section members). If you have questions or would like more information, please contact John J. Eagan ( eaganj@whiteandwilliams.com ; 212.868.4835) or L. Stephen Bowers ( bowerss@whiteandwilliams.com ; 215 . The Tax Commission and Motor Vehicle offices will close on Monday, June 20, 2022 in observance of the Juneteenth holiday. So even in rolling conformity states, the state legislature may need to act separately to confirm whether they will adopt . Visitors are encouraged to schedule an appointment by calling (802) 828-2865. House Bill 1320 was signed into law by Governor Kemp on May 2, 2022 and applies for taxable years . The interaction between f ederal tax laws and state and local tax laws is commonly referred to as conformity. Detangling State Tax Conformity. There are multiple states that have provided specific guidance indicating whether or not they will conform to the federal treatment of the forgiven PPP loans. Table 2 shows states' tax treatment of NOLs, effective for tax years 2018, 2019, and 2020. While the PPP creates economic and tax benefits for federal tax purposes, it also poses questions for state taxing authorities. Paycheck Protection Program (PPP) State Tax Treatment Chart 2 State Taxability of CARES Act PPP loan forgiveness Deductibility of expenses paid with PPP loan proceeds as provided by the CAA Hawaii (continued) Hawaii Tax Information Release No. Those . AICPA is also updating a state tax guidance chart and has developed an AICPA PPP State Tax Treatment Chart (available to AICPA members) and a sample client letter on telework state tax issues (available to AICPA Tax Section members). The Paycheck Protection Program (PPP) was originally created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted March 27, 2020, [1] to provide cash flow assistance to small businesses impacted by the COVID-19 pandemic. While the CARES Act specifically . Tax & Accounting . The agreement also partially conforms California tax law to new federal tax treatment for loans provided through the Paycheck Protection Plan, allowing companies to deduct up to $150,000 in expenses covered by the PPP loan. Although forgiven PPP loans will not incur a federal tax (due to late December 2020 action by Congress), taxation at the state level is more uncertain. 2021-48, 2021-49, and 2021-50) the IRS provided guidance Thursday on the treatment of amounts excluded from taxpayers' gross income in connection with forgiveness of Paycheck Protection Program (PPP) loans.The AICPA had requested guidance in a March 15, 2021, letter to the IRS. Proc. Thus, NYC decoupled from the new five-year carryback for NOLs incurred in the 2018-2020 tax years, as well as the temporary suspension of the 80% limitation under IRC Section 172 enacted by the CARES Act. $10,000 and $5,000 EIDL advances are tax free, and expenses paid with funds are fully deductible. The state's conformity to the rest of the IRC is still 2017. But if the tax-free income and expenses both hit the OAA, then there would be additional AAA to make the distributions tax-free before having to dip into the E&P. This is what the new guidance allows.