So, we are half-way through 2021 and I just found out that I hadn’t quite thought one scenario all the way through.  My bad.

About what am I talking?

The PPP (Paycheck Protection Program)  loan denouement.

We worked really hard to get any client who wanted a PPP loan.  That was true even before the Feds changed the rule that the PPP loan proceeds were not to be taxable.

The initial definition of the program meant that a $ 25K PPP loan that was used to cover payroll and employee benefits (with a small percentage of other expenses included) would mean that those covered expenses would not be deductible to the entity.  After all, it didn’t pay for them.  But, even if the firm was a pass-through entity and the owner(s) were in the “gotcha bracket” [that’s the top IRS bracket of 37% plus the Medicare tax of 0.9%], it would still be more than $ 15K in “free money”.   Thankfully, the IRS decided to not tax the PPP proceeds, so all of it was free money.  Except…

It never dawned on me that the states would consider taxing the PPP proceeds.  (Yes, I know.  I deserve those 40 lashes with a wet noodle!)

Right now, I can tell that most states will NOT be taxing the proceeds of the PPP loans.   And, if your firm is NOT a pass-through, you don’t have to worry about being taxed on the PPP proceeds if your firm is based in Nevada, Ohio, South Dakota, Washington or Wyoming,  Because those five states don’t have a corporate income tax.

But, if you are unlucky enough to have your business based in any of the states above- be prepared to pay state income taxes (personal, if the entity is a pass-through; corporate if your entity is not) on the PPP proceeds.

Yeah.   My company is one of those “lucky” ones!

Forgiveness
While I am at it, if you got a PPP loan in 2020, you need to make sure your loan is forgiven- NOW.  (2021 is not ready for forgiveness yet.)   Because if you don’t, that loan becomes permanent- and you will owe the principal- and interest (1%).  If your loan was issued prior to 5 June 2020, the loan must be repaid within 2 years.  After that date, the loan repayment period is 5 years (but one could request a shorter maturity date from the lender- not automatically granted- to keep the interest payment lower.)

There’s just a 10 month period by which you must file for forgiveness from the PPP loan.  That means if you got the PPP loan in April- and used the 8 week period for your covered expenses, your deadline to file for forgiveness is the ides of July.  If you elected to use the 24 week period to use the PPP funds, the loan forgiveness must be requested by September.

According to the SBA (Small Business Administration) some 2 million of the 5.2 million loans have not yet requested forgiveness.  If that’s you- step on it.  Forgiveness is divine!

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