On December 27th, President Trump signed the Consolidated Appropriations Act, 2021 (CAA). One of the provisions of this act provides that all expenses paid with proceeds of forgiven PPP loans are now deductible for tax purposes. The IRS had previously agreed that the PPP loan forgiveness did not represent taxable income, but argued that any expenses paid with the forgiven loan proceeds would not be deductible for tax purposes. Under the new CAA, forgiveness income will still be exempt from tax, and all expenses will be deductible.
In addition to addressing the tax impact of the PPP Loan, CAA also provides that EIDL Advances received by some businesses during 2020 are also not subject to tax. Furthermore, the CAA repeals the provision requiring that the amount of PPP Loan that can be forgiven be reduced by any EIDL advance. Borrowers that have already applied for and received PPP loan forgiveness will be able to amend their applications to request that the EIDL not reduce their forgiveness amount.
Besides the PPP and EIDL programs, the State of Ohio had its own programs to stimulate the COVID economic recovery. Under current law, both the Ohio Small Business Relief Grant and all Ohio Bureau of Workers Compensation dividend checks will be treated as taxable income.
If you have any questions or need further information on this subject, please feel free to give us a call in our Celina or Coldwater offices.