We learned late last week that the Paycheck Protection Program (PPP) loan forgiveness exclusion enacted by AB 80 (Ch. 21-17) does not apply for California tax purposes to either first or second draw loans received after March 31, 2021. According to the Franchise Tax Board, because AB 80 only conforms to the federal PPP loan forgiveness provisions as they were last amended by the Consolidated Appropriations Act of 2021, California does not conform to the extension of the PPP loan program by the PPP Extension Act of 2021 (P.L. 117-6). Because these loans are not considered “covered loans” as that term was defined when AB 80 was enacted, forgiveness of these loans do not qualify for the California exclusion.
Although taxpayers who do not qualify for an exclusion may fully deduct expenses paid with forgiven PPP loan amounts on their California return, the taxability of the PPP forgiveness will come as a big surprise for many businesses. Remember that if a taxpayer receives loan forgiveness for these loans in 2021, they must account for this taxable income in their fourth quarter estimated California tax payment. There is no exception to the underpayment of estimate tax penalty that would apply for these taxpayers.
Contact us at (818) 789 1179 with questions about the tax implications of your PPP loan.