Some States to Tax Forgiven PPP Loans
Nine states are currently planning on taxing forgiven Paycheck Protection Program (PPP) loans
Your state may force you to pay income taxes on forgiven Paycheck Protection Program (PPP) loan amounts, which could be substantial depending on how much you were awarded, Forbes reports.
The PPP was designed to help small businesses, including those in the cleaning industry, stay afloat during the coronavirus pandemic. It was part of the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act and allowed borrowers up to US$10 million from private lenders without collateral, personal guarantees, or fees. In the first week, about 600,000 businesses received more than $5 million via 3,000 lenders. The program is expected to end on May 31, 2021.
In October, the Small Business Administration (SBA) began processing loan forgiveness applications for businesses who met eligible requirements. The businesses that met all the requirements could end up with their entire PPP loan forgiven and have no federal income taxes due.
Taylor English law partner Christina Moore points out some states are still making changes in terms of tax treatment for PPP loans. For example, California changed course on April 28, when Governor Gavin Newsom signed legislation that would allow most California businesses that received a forgiven PPP loan to avoid taxes on forgiven amounts if they can show at least a 25% reduction in profits for at least one quarter as a result of the pandemic. On March 15, Virginia signed into law a bill that excludes forgiven PPP loans from taxable income. This new legislation also offers specific deductions up to US$100,000 in expenses paid using forgiven PPP loans.
However, Forbes reports that there are nine nine states currently planning to tax forgiven PPP loans including California, Florida, Hawaii, Minnesota, Nevada, North Carolina, Texas, Utah, and Vermont.
Law experts advise business owners to familiarize themselves with their state’s position on PPP loans and track any proposed legislation on this. Additionally, experts advise businesses to understand their tax liability and plan to have funds available.