IMPORTANT UPDATE 1/14/2021: The State just released the New York tax implications of the CARES Act on its website, (https://www.tax.ny.gov/pit/cares-act-faq.htm). New York will follow federal treatment and will not tax the PPP loan forgiveness, and will allow deductions.
January, 2020: The federal government has recently clarified that expenses paid with Paycheck Protection Program (PPP) funds are deductible for federal tax purposes, however, New York State has not followed suit. The 2020-2021 Budget Act passed by New York on April 3, 2020 states “for tax years beginning before January 22, 2022, any amendments to the Internal Revenue Code after March 1, 2020, will not apply.” This includes provisions related to NOL carrybacks, business interest expense limitation relief, qualified improvement property depreciation changes, and PPP Loan Forgiveness. The act specifically states “any indebtedness that was forgiven on a loan covered under the PPP that was excluded from federal gross income must be added back as an adjustment for New York.”
It is important to note that the New York requirement to include income related to the cancellation of debt, e.g., PPP loan forgiveness, is only includible in New York income and subject to tax in the year the debt is forgiven. If your business received a PPP loan and was not notified that the debt was forgiven in 2020 the cancellation of debt income will not become taxable until the year in which the debt is forgiven. The timing of the PPP loan forgiveness is an important tax planning item to be aware of as we approach the 2020 tax filing season and in looking forward to 2021 tax projections.
As many businesses are struggling with hardships resulting from the COVID-19 pandemic, it is unfortunate NY has neglected to conform with the tax breaks offered by the federal government. If you have questions on the federal and state tax provisions, surrounding the recently developed pandemic assistance packages and related tax incentives, reach out to the EFPR Group SALT team so we can help you analyze these benefits, to determine what is most advantageous for your business.