Amid the COVID-19 pandemic, the Paycheck Protection Program has afforded millions of small businesses the option to keep their doors open and their employees working during these challenging times. 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 has elected to exempt forgiven PPP loans from federal income taxation.
On the state level, several states are taxing PPP loan forgiveness in some manner, either by treating forgiven loans as taxable income, denying the deduction for expenses paid for using forgiven loans, or a hybrid with elements of both. States as of this writing choosing these options in some form include:
• Arizona
• California
• Florida
• Massachusetts
• Minnesota
• Nevada
• New Hampshire
• North Carolina
• Ohio
• Texas
• Utah
• Vermont
• Virginia
• Washington
An article with further information can be found here. Most of the impact will be felt in the 2021 tax year for owners of or investors in businesses with operations in the states above unless law or policy changes are made.
Stay in touch with your Crosslin tax advisor, as this list is continually changing. As always, we are here to help. Give us a call at (615) 320-5500.
