California Law Provides New Tax Relief for PPP and EIDL Recipients
June 2, 2021
On April 29, 2021, California Governor Gavin Newsom signed AB 80 into law, aligning California law with the Federal Consolidated Appropriations Act. AB 80 provides tax relief for non-publicly traded companies that received a Paycheck Protection Program (PPP) loan or an Economic Injury Disaster Loan (EIDL).
For PPP loan recipients, expenses paid with forgiven PPP loan money may now be claimed as deductible business expenses on California state income tax returns. This is welcome news for many taxpayers, but there is one important provision that limits the reach of this deduction: it is only allowable if the taxpayer had a 25% decline in gross receipts for at least one quarter of the 2020 tax year compared to the same quarter in the previous tax year. While there are as yet no specialized tax forms required to validate this decline, taxpayers should keep all relevant financial records in case the state later requires more information. Note that AB 80 requires a 25% decline in only one 2020 quarter. If a taxpayer does not meet the required threshold, an addition to taxable income will be required in the amount of the expenses deducted on the federal tax return.
An additional provision of AB 80 allows recipients of EIDLs to exclude EIDL advance grants from gross income for California purposes. In this case, EIDL recipients do not need to meet the same 25% decline in gross receipts required for taking the PPP deduction noted above.
AB 80 applies these rules retroactively to January 1, 2019 to ensure any fiscal year taxpayers whose tax years began in the calendar year 2019 are included. Any taxpayers who have already filed their California tax returns for 2019 or 2020 should consider amending the returns to incorporate the changes allowed by AB 80.
For questions regarding these new or other California tax laws, please contact our State and Local Tax Team at SALT@GMCO.com. For any inquiries related to the PPP loans, please Dave Porter, DPORTER@GMCO.com