The last update was on July 7, 2021

Note: The map and table below show the state tax treatment of PPP loans forgiven in 2020, not those pardoned in 2021. While most states are moving towards a uniform tax treatment for debts owed in 2020 and 2021, not all states.

Check out the latest updates

The US Small Business Administration’s Payroll Protection Program (PPP) is providing a vital lifeline to help keep millions of small businesses open and keep their employees afloat during the COVID-19 epidemic. Many debtors are forgiven. Pardon eligibility requires that the loan be used for a specific purpose (such as payroll, mortgage payments, rent and utilities) over a period of time. Normally, a pardoned loan is eligible as income. However, Congress opted to exempt pardoned PPP loans from federal income tax. Many states, however, continue to tax levied loans as tax revenues, deducting the costs incurred to use forgiven loans, or both. The map and table below show the state’s tax treatment for pardoned PPP loans.

Linn Forgiveness of PPP in 2020
State Excluded from tax income Allows cost reduction
Alabama
Alaska
Arizona
Arkansas
California ** Reduced for some businesses
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada *
New Hampshire
New Jersey
New Mexico
new York
North Carolina
North Dakota
Ohio * Reduction is allowed under PIT (not cat)
Oklahoma
Oregon
Pennsylvania
Rhode Island ** Not included for some businesses
South Carolina
South Dakota There is no personal or corporate income tax
Tennessee
Texas *
Utah
Vermont
Virginia ** Allows partial reduction
Washington *
West Virginia
Wisconsin
Wyoming There is no personal or corporate income tax
District of Columbia

Notes

* Nevada, Texas and Washington do not impose personal income tax or corporate income tax, but waive GRT. Ohio requires personal income tax and GRT. Texas and Nevada do not make pardoned PPP loans like tax revenues, Ohio and Washington. In each of these states, there is no deduction for business expenses corresponding to the total invoice tax. PPP loans are exempt from taxable income under Ohio Individual Income Tax, and deductions are allowed. According to the Ohio Business Income Tax (CAT), the loans are exempt from total taxable income, but in line with the total receipt tax, KAT does not allow deductions for business expenses.

** Virginia does not include taxable PPP loans from taxable income, but allows it to deduct only the original $ 100,000 paid for the use of forgiven PPP loans. California provides pardons for some businesses, but not all businesses, with federal tax treatment; The state does not include pardoned PPP loans from taxes, but the spending cut is restricted to companies and businesses that do not experience a 25 percent annual decline in total receipts between 2019 and 2020. Forgiven PPP loan only $ 250,000 or less.

Sources – Tax Foundation; State Tax Laws, Forms and Guidelines; Bloomberg BNA

P.P.P. It is a condition that everyone agrees with the Federal Tax Code.

All states use the Internal Revenue Code (IRC) as a starting point for their own tax code, but each state has the power to make its own adjustments. States that use driving compatibility automatically accept federal tax changes when they occur, providing a simpler approach and more confidence for taxpayers. States must legislate in a legal way to stand up to a specific date and to accept recent changes.

It is common for states to agree to certain parts of the federal tax laws, but they are different. States that use driving compatibility sometimes accept the law to be separated from certain federal changes after they occur. Most states that use consistent compatibility routinely update their approval dates, but sometimes refusing to accept new federal tax changes results in states that follow the old version of the IRC. Describes static compatibility do Update their compatibility dates, sometimes varying from some changes on ‘above’ Advertisement Basis. There is a lot of mistrust about the government’s tax administration because of the way the federal government has provided for the reduction of forgiven PPP loans even after the deadline.

When the CARES Act was passed on March 27, 2020, Congress intended to make PPP loans tax-free at the federal level, a departure from the norm. Normally, federal debt is forgiven for a variety of reasons, the amount of which is forgiven by the federal government and the states that follow that treatment. Under normal circumstances, this is a reasonable exercise. However, Congress is designed to be a tax-free emergency lifeline for small businesses struggling to keep up with the outbreak, so CARES law prohibits PPP loans from taxable income (although not directly by improving the IRC). Congress also seems to be reducing the cost of using PPP loans – the Tax Joint Committee made the first provision like that – but it does not directly include language in the law. In the months following the enactment of the CARES Act, the Treasury Department had expenses incurred with PPP loans. no I do not Subject to section 265 of the IRC, which prohibits deducting tax-related expenses at the time, may be deducted in accordance with the law. This definition has surprised many legislators, as they do not exempt pardoned debts from taxation, but deny the reduction, eliminating congressional benefits. Therefore, When the Integrated Proclamation is enacted for December 27, 2020, 2021, the law has been amended to state that the costs of using pardoned PPP loans will actually be reduced.

As a result, most states are now located in one of three areas. States that comply with the pre-CARES version of the law generally consider forgiving federal loans as tax deductions and related business expenses (such as salaries, rent and utilities). States that comply with post-CARES law but the IRC pre-summary version of the proclamation are generally on the way to exempt pardoned PPP loans from taxable income but deny the deduction for related costs. States that use driving compatibility or modify their compliance laws to a post-consolidated version of the Proclamation do not include pardoned PPP loans from income and allow them to reduce related costs. In some cases, however, states have adopted certain provisions on PPP loans that replace their overall compliance approach.

State policymakers are now pushing for the PPP. Recipients are on hand to help Congress get the full state of emergency benefits by refraining from paying for these federal livelihoods at the state level. Forbidden PPP loans for tax deductions have the same tax effect as forgiving PPP loans as a tax return – both tax methods increase tax revenue if the business does not initially receive a PPP loan. . Place. Currently, tax-exempt PPP loans have been introduced in several states, including Arizona, Arkansas, Hawaii, Maine, Minnesota, New Hampshire and Virginia, and Wisconsin has recently taken similar action. This is one of the basic issues – the tax on forgiven loans (or non-acceptance) represents, in principle, income loss consistent with federal treatment. However, if the initial condition is one of the non-forgiven PPP loans – the My situation– Then follow the federal directive. This was not the amount of revenue that states could count or expect.

If policymakers want to avoid taxing these small business lines, they need to act quickly as tax deadlines are approaching.


Was this page useful to you?

thanks you!

The Tax Foundation works hard to provide sensible tax policy analysis. Our work is based on the support of members of the public like you. Do you intend to contribute to our work?

Donate to the Tax Foundation