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NYS-Issued Guidance Regarding the NYS Income Tax Treatment for PPP Loan Forgiveness

The Consolidated Appropriations Act, 2021, H.R. 133, (CAA 2021) passed both houses of Congress on Dec. 21, 2020, and President Donald Trump signed the bill into law on Dec. 27. Included in this legislation, was language which clarified that, not only is the income from the forgiveness of PPP loans not taxable but that the expenses related to the forgiveness are fully deductible. In addition, the excluded income should be included in tax basis calculations for taxpayers who are shareholders or partners of S corporations or partnerships, respectively.

After the passage of CAA 2021, there was a concern, due to the 2020 NYS tax legislation regarding the “decoupling” of certain tax law changes made for federal purposes from their NYS tax treatment, that a different tax treatment for PPP loan forgiveness may result. However, based on recent developments, it appears that NYS will not tax the income from the forgiveness of PPP loans, nor disallow any of the deductions related to this income. In other words, they will follow the federal treatment which is favorable to NYS taxpayers.

It has been reported, in an article by James T. Madore of Newsday, citing a spokesperson of the New York State Department of Taxation & Finance (NYSDTF), that the NYSDTF has “decided to adopt the federal rule”. In the article, the spokesperson was quoted as saying “We’re going to conform to federal guidelines … whoever received the [PPP] loans, it’s not considered taxable income… Additionally, expenses associated with PPP loans are deductible on state tax returns”.

In addition to the article, it was noted that NYSDTF has also provided information on its website related to this topic. The NYSDTF website now includes the following Q&As:

Question: Are Payroll Protection Program (PPP) loans that are forgiven subject to New York State personal income taxes?

  • Answer: New York State follows the federal treatment. If the forgiven loan is excluded from federal adjusted gross income, it is also excluded from New York adjusted gross income.

Question: Are expenses associated with PPP loans deductible for New York State personal income tax purposes?

  • Answer: New York State follows the federal treatment. If the expenses related to the forgiven loan are deducted in computing federal adjusted gross income, these deductions are automatically excluded from New York adjusted gross income.

Conclusion

These developments are very good news for those taxpayers that are subject to NYS income tax and have or will have PPP loan forgiveness. It appears, based on this recent guidance, that NYS will not tax the PPP loan forgiveness nor disallow expenses related to the excluded income. The concern regarding the decoupling provisions appears to no longer be a concern due to the NYSDTF decision to “adopt the federal rule.” We do expect that NYS will provide additional, more formal, guidance very soon since the 2020 Income Tax filing season is beginning.

As always, The Bonadio Group is here to help guide you through this process and ensure you maximize your loan forgiveness. Click here to get in touch with us for assistance today.

The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We, therefore, make no warranties, expressed or implied, on the services provided hereunder.