Nebraska Confirms that Forgiven PPP Loans are not Taxable and Covered PPP Loan Expenses are Deductible; Stabilization Grants are Taxable
The Paycheck Protection Program (PPP), created by the CARES Act, provides forgivable loans to help businesses keep their workforce employed during the Covid-19 pandemic. The CARES Act excludes forgiven PPP loan amounts from federal gross income. The Consolidated Appropriations Act, 2021, adopted at the end of 2020, made eligible expenses paid with forgiven PPP loan proceeds deductible, effectively making PPP loans tax-free for federal income tax purposes. Although the federal income tax treatment of PPP loan forgiveness and the deductibility of covered expenses is now settled, state income tax treatment of these two issues has not been fully resolved.
Generally, with regard to federal tax legislation, state conformity depends on whether the state automatically conforms with the latest version of the Internal Revenue Code (IRC) through “rolling conformity,” whether the state only conforms with a version of the IRC as of a specific date through “static conformity” or whether a state chooses which IRS provisions is will adopt through “selective conformity.” Nebraska is a rolling conformity state.
The provisions of the CARES Act addressing the tax treatment of forgiven PPP loan proceeds do not explicitly amend the IRC, which created uncertainty regarding the state income tax treatment of PPP loan forgiveness and expense deductibility in rolling conformity states like Nebraska. To resolve this uncertainty, the Nebraska Department of Revenue recently updated its frequently asked questions (FAQs) to confirm that Nebraska is following the federal income tax treatment of both PPP loans and stabilization grants:
Nebraska will follow the federal treatment of both income and expenses. Accordingly, for Nebraska state income tax purposes, PPP loan forgiveness is excluded from income and deductions are allowed for covered expenses.
Stabilization Program Grants
Nebraska established a stabilization grant program funded with proceeds received under the CARES Act. Taxpayers must include grants received from stabilization programs in federal gross income. Therefore, the grants will also be included in a taxpayer’s gross income for Nebraska state income tax purposes.
Koley Jessen continues to monitor the situation and stay current on the federal and state tax issues facing businesses and individuals. If you have additional questions or concerns as the situation develops, please contact a member of the Koley Jessen Tax Practice Group.
The FAQs can be found here: https://revenue.nebraska.gov/about/frequently-asked-questions/business-income-taxes-faqs