On February 9,Governor Phil Murphy and State Treasurer Elizabeth Maher Muoio announced that New Jersey will follow the federal government’s lead in allowing Paycheck Protection Program (PPP) loans to be tax exempt at the state level and enable recipients to deduct business expenses that were paid with the tax-exempt loan proceeds.
New Jersey can follow the federal government’s treatment without enabling legislation, S3234/A5149 (Singleton/Greenwald), which the CCSNJ was proud to support as it moved through the legislature prior to this announcement.
Under the federal PPP, some or all of the loan may be forgiven if certain conditions are met. While federal law generally considers forgiven loans to be taxable income, the “Consolidated Appropriations Act, 2021,” which reauthorized the program, clarified that the amount of a PPP loan which is forgiven may be excluded from income for federal tax purposes and that expenses covered by PPP loans may be deducted from income for federal tax purposes.
For the 2020 tax season, related expenses paid for with PPP loans will be deductible for both Gross Income Tax (GIT) and Corporation Business Tax (CBT) purposes and forgiven loans will be excluded from being subject to either tax.
Should you have any questions, please contact Hilary Chebra, Manager of Government Affairs at hchebra@chambersnj.com.
