Even if your Paycheck Protection Program (PPP) loan has been partially or fully forgiven, small business owners need to be aware of the tax implications of PPP to make the best decisions for their businesses:
Is PPP Loan Forgiveness Taxable at the Federal and State Levels?
PPP forgiveness is not taxable at the federal level. It is left up to individual states whether they follow federal rules or decide to tax forgiveness at the state level.
To check whether your state has PPP tax, schedule a call to speak with a member of the NEWITY managed accounting team by clicking this link.
Will the Small Business Administration (SBA) Issue Form 1099s to PPP Borrowers for the Amount of Forgiveness?
No, PPP forgiveness is not taxable at the federal level, so Form 1099s are not necessary for a business to accurately prepare their taxes
Is my Business Permitted to Deduct Expenses that were Incurred while using PPP Funds?
Initially, IRS Notice 2020-32 stated that PPP borrowers with forgiven loans were not eligible to deduct expenses if the payment of such expenses contributed to the loan being forgiven.
However, this decision was reversed through the Consolidated Appropriations Act of 2021, which provides that businesses may deduct covered expenses that were paid using PPP funds.
This applies at the federal level. Similar to how individual states are allowed to decide whether or not to conform with federal guidance, some states may reject the deduction of these expenses.
To determine businesses’ specific state tax liability, members should consult with a licensed CPA. Subscribers to KPMG Spark – brought to you by NEWITY – have on-demand access to KPMG’s network of tax experts who can provide accurate advice on matters such as this.