PPP Loan Forgiveness May Not Be Tax-free For Everyone
States may force businesses to pay income taxes on forgiven loan amounts
The Paycheck Protection Program (PPP) was designed to help small businesses keep their doors open and employees paid during the height of the pandemic, and it was likely a huge factor in helping our economy stay afloat throughout the second half of 2020 and the first half of 2021. As most people know, loans from the PPP program were also available in waves, first with the initial PPP offering and then with the Second Draw PPP loans. Ultimately, the program will end on May 31, 2021, which means businesses still have a few weeks to apply through a private lender.
While easy loan approval is always a good thing, the Paycheck Protection Program (PPP) came with the added benefit of loan forgiveness for businesses who met eligibility requirements. To have a First Draw PPP loan amount forgiven, businesses had to show that employees and their pay were maintained, and that loan proceeds were used to fund payroll costs and other required expenses. Specifically, 60 percent of loan proceeds had to be used for payroll expenses.
With the Second Draw PPP, loan proceeds were for the second 8 to 24-week period following loan disbursement. The same requirements apply for forgiveness, including maintaining employees and pay, using loan proceeds on payroll and other eligible expenses with 60 percent required to cover payroll specifically.
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