PPP Loans and Taxation

Three weeks ago I wrote a post explaining when forgiven debt is taxable. In light of the current pandemic and three stimulus packages that have been passed, this topic deserves some additional attention. As part of two of the three stimulus packages, Congress provided funding, through the U.S. Small Business Administration (SBA), for the Paycheck Protection Program (PPP).

The PPP program provides loans to small businesses to keep workers on payroll. It is designed to help with payroll costs and other major expenses. The loans may be forgiven if they were used towards specific categories of expenses including payroll (at least 60% of loan proceeds), rent, and utilities. Any portion of the loan that was not forgiven will remain as a loan with payments deferred for a generous period and at an interest rate fixed at 1%.

The CARES Act, which introduced the PPP program, intended for the forgiveness of PPP loans to be treated as a tax-free transaction on the federal level. However, states can enact their own rules regarding taxation and states are split on whether the forgiveness of PPP loans are taxable. Fortunately for New Yorkers, PPP loans that are forgiven are not treated as taxable income. The good people at the Tax Foundation are keeping tabs on state activity and maintain an updated list. You can check your state here.

This is certainly a sigh of relief for many as this lifeline provided by the SBA could have created significant tax liabilities for individuals and small businesses. The PPP loans are available to small businesses, non-profit organizations, sole proprietors, independent contractors, and people who are self-employed. The last three groups would face the biggest hit if these forgiven loans were taxable.

It’s reassuring to see New York State do the right thing to help New Yorkers in these difficult times. Just remember that if you are looking for loan forgiveness, be sure to review the SBA guidelines and submit all the required forms and documents to your lender in a timely manner.

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Zimmelman Law PLLC

With over ten years of experience, Matthew D. Zimmelman, Esq. has helped thousands become debt-free and saved countless New Yorkers from losing their homes in foreclosure. Whether you are an individual or a small business, looking to file bankruptcy or looking to eliminate your debt without filing bankruptcy, we are here to help you get a fresh start.
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