By Charles Jeane, Assistant Chief Counsel
‘Tis better to have a loan and be taxed than to never have had the loan at all. Tennyson and taxpayers with forgiven PPP loans who live in states that choose to tax those forgiven loans surely will not agree with that musing, but it is a dilemma that many small businesses across the country may face.
The Paycheck Protection Program (PPP) was part of the $2.2 trillion CARES Act passed by Congress in March 2020 to help keep small businesses afloat during the current pandemic. If PPP loan proceeds are used for qualifying costs – payroll; health insurance for paid sick, medical, or family leave; mortgage interest payments; rent; and utility payments – and 60% of the loan proceeds are used for payroll costs, then the federal government will forgive the loan. While a loan does not generate taxable income, a forgiven loan generally does. Congress addressed, to a degree, that issue by specifically stating in the CARES Act that forgiven PPP loans are not includable in taxable income. I addressed in an earlier article the issue of the deductibility of business expenses paid with forgiven PPP loan proceeds, which as of the date of this article has not been resolved. Read More