Paycheck Protection Program (PPP) loan forgiveness
On September 9, 2020, Assembly Bill (AB) 1577 (CARES Act Conformity) was enacted which allowed an income exclusion for tax years beginning on or after January 1, 2020, for forgiven PPP loans.
On April 29, 2021, AB 80 was enacted which allowed more income exclusion (from second draw PPP loans and EIDL advance grants) and allowed the deduction of expenses, basis adjustments, and tax attribution adjustments for qualifying taxpayers , for tax years beginning on or after January 1, 2019.
For California purposes, forgiven PPP loans are excluded from gross income.
Deductions and other adjustments
To qualify for expense deductions, basis adjustments, and lack of reduction of tax attributes related to AB 80, you must meet the following qualifications.
- Your business cannot be publicly traded
- You meet the 25% gross receipts reduction qualifications
If your forgiven loan relates to an Economic Injury Disaster Loan (EIDL) Grant or Targeted EIDL Advance, you are not required to meet these qualifications to deduct expenses .
The treatment of deductions, basis, and tax attributes for California income tax purpose may differ from the federal income tax treatment. For federal qualifications regarding income tax treatment, visit Coronavirus Tax Relief for Businesses and Tax-Exempt Entities.
25% reduction from gross receipts
California conforms to the federal gross receipts test requiring a 25% or greater reduction in gross receipts and will therefore follow the rationale of this related federal guidance.
How to file
|You qualify under AB 80||You have filed TY 2019 or TY 2020||Amend your return if you need to report:
|You have not filed TY 2019 or TY 2020||Report any allowable deductions on your original return|
|You do not qualify under AB 80||You may qualify under IRS Rev. Ruling 2020-27 to deduct some expenses|
If you make an election under IRS Rev. Proc. 2021-20 for federal purposes, we will follow the federal treatment for California tax purposes.
If you do not qualify for deductions under AB 80, California follows the IRS Revenue Ruling 2020-27.
Claim deductions or adjustments
Follow our normal amended return procedures to claim any deduction or adjustment related to PPP loans.
Deduction claimed in error
If you claimed a deduction that you do not qualify for, you must file an amended return using our normal amended return procedures.