Bill to Address New Jersey Tax Issues for Forgiven PPP Loans Passes Senate
A new bill, S3234/A5149, would exclude forgiven Paycheck Protection Program (PPP) loans from New Jersey taxable income and allow deduction of business expenses related to PPP forgiveness.
The bill passed the Senate on Jan. 28 and now goes to the Assembly Appropriations Committee.
Below is the testimony the NJCPA provided in support of the bill:
The PPP program was established to help small businesses that were in dire financial condition to survive the coronavirus pandemic. Millions of small businesses across the country were going out of business or were on the brink of it.
Wisely, Congress included provisions to make forgiven loans free from taxation. While the intent was for the forgiveness to be tax free, current IRS rules state that the expenses paid with a forgiven (i.e., tax-free) PPP loan would not be deductible. Fortunately, this was overturned by Congress through the passage of the Consolidated Appropriations Act which provides for the deductibility of expenses paid with forgiven PPP loans.
Here in New Jersey, many businesses may face the prospect of taxation of their forgiven loans due to the fact that New Jersey does not “piggyback” federal tax laws, like the vast majority of other states do. Therefore, pass-through business income, such as that from partnerships or S corporations, is taxable when it flows through to individual owners. Without specific legislation at the state level to prevent this, PPP forgiven loans may, in effect, be taxed. And as far as we can ascertain at this point, no other states will be taxing forgiven loans as income.
Such taxation would be a huge blow to small businesses that are, by and large, still in perilous financial distress, struggling to stay afloat. Taxing these forgiven loans would be counter to the state’s attempt to keep businesses alive and bring the economy back from the brink. It would be incredibly unfair and short sighted and harmful to the economy. Congress wisely saw the need to prohibit such taxation and New Jersey would be just as wise to follow suit.
In the interest of the survival of New Jersey’s small businesses and reviving the economy, we urge members of the Senate Budget Committee to vote yes on S3234. Thank you for considering our views on this legislation.