The Paycheck Protection Program (PPP) created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and extended by the December 2020 year-end appropriations bill provides a direct incentive for small businesses to keep their workers on payroll. It is backed by the Small Business Administration (SBA) and provides potentially forgivable, low-interest loans for small to medium-sized organizations who can demonstrate expenses were used toward retaining their headcount.
In Massachusetts, business owners and independent contractors with certain forgiven federal loans during the COVID-19 pandemic are now able to exclude those funds from their gross taxable income. On April 1, 2021, Massachusetts Gov. Charlie Baker signed legislation that enables individuals and all entities, regardless of how they’re organized for tax purposes, with forgiven PPP loans in 2020 to receive the same tax benefits that corporations do. PPP loan forgiveness for personal income taxpayers will now be considered nontaxable which conforms to the federal treatment. Schedule C sole proprietors, single member LLCs, individual partners in a partnership, and S corporation shareholders now all share the same tax benefits.
With the passage of the December 2020 year-end appropriations bill, Congress made it clear that a forgiven PPP loan is completely tax-exempt and is not taxable income on the federal level. Massachusetts-based corporations received the same benefits because the state’s corporate tax code automatically conforms to the federal corporate tax code. However, many states, including Massachusetts have a tax code fixed to a specific date (in the case of Massachusetts, the tie-in date is 2005 for individuals), which affected companies structured as pass-through entities that are typically taxed at the individual partner level. The signing of the new legislation in Massachusetts will help small business owners in Massachusetts ensure that their PPP loan is not considered taxable income.
The new legislation freezes unemployment insurance rate increases for the next two years, bringing down 2021’s planned increase to an average of 17%. Additionally, the law waives taxes on up to $10,200 in unemployment insurance benefits for residents who live below 200% of the federal poverty level, potentially saving workers thousands of dollars. It also treats Economic Injury Disaster Loan (EIDL) grants as nontaxable, meaning business expenses paid with EIDL grants are considered deductible.
For more information about how this affects you and your business, please contact a member of our team.
Looking for more COVID-19 resources? Visit our resource center for expertise on impacts to expect and how your business can respond.
------------------------------------------------------------------------------------------------------
Tarra Curran, CPA is the Private Company Tax Leader and Leader of the State and Local Tax Practice in New England. She can be reached at tcurran@cbiz.com or 401.626.3240.
Copyright © 2021 CBIZ & MHM (Mayer Hoffman McCann P.C.). All rights reserved. CBIZ and MHM are separate and independent legal entities that work together to serve clients. CBIZ is a leading provider of tax and consulting services. MHM is an independent CPA firm providing audit and other attest services. This article is protected by U.S. and international copyright laws and treaties. Use of the material contained herein without the express written consent of the firms is prohibited by law. Material contained in this alert is informational and promotional in nature and not intended to be specific financial, tax or consulting advice. Readers are advised to seek professional consultation regarding circumstances affecting their business.
