PPP Loans Complicate Tax Season for Businesses in 19 States

Business owners who took out a loan from the federal government’s Paycheck Protection Program (PPP) will be facing extra challenges as they file their taxes due to questions about whether income from the loans should be taxed, Inc. reports. 

These forgivable loans were set up to help employers pay their workers during business shutdowns and slowdowns due to the coronavirus pandemic and were never meant to be taxed as income. However, 19 states currently tax PPP loans, either by including them as taxable income or disallowing them as business deductions.

Legislatures in at least seven of the 19 states in question—Arizona, Arkansas, Hawaii, Maine, Minnesota, New Hampshire, and Virginia—have introduced bills to exclude PPP loans from taxation. In most cases, those bills have yet to be passed.

It’s unclear how much of a liability businesses will face for getting taxed on their PPP loans at the state level. As PPP loans are new, it is hard to compare the impact with past years. Tax specialists recommend that filing deadlines be moved to June 15 to give states time to clarify the issue.