Partial Conformity to PPP Loan Tax Rules

Gov. Newsom and legislative leaders announced Feb. 17 that they have reached an agreement on a legislative package to provide relief to businesses and individuals facing economic hardship from the COVID-19 recession.

The package includes an agreement to partially conform California’s tax law to the new federal tax treatment for loans provided through the Paycheck Protection Plan (PPP). More than 750,000 PPP loans were taken out by California small businesses. The agreement allows companies to deduct up to $150,000 in expenses covered by the PPP loan. All businesses that took out loans of $150,000 or less would be able to maximize their deduction for state purposes. Larger firms that took out higher loans would still be subject to the same ceiling of $150,000 in deductibility.

This tax treatment would also extend to the Economic Injury Disaster Loans.

As of Feb. 18, bill language for the business items of the package has been released:

  • AB 88: Golden State Stimulus Trailer Bill.
  • SB 87 (Caballero): Small Business Grants Trailer Bill.
  • AB 80 (Burke): PPP Partial Federal Tax Conformity Bill.
  • AB 83: Small Business Licensing Fee Exemptions Trailer Bill.
  • AB 81: General Federal Relief and Cleanup Trailer Bill.
CalCPA has been actively engaged on this topic and has urged legislative leaders and the governor’s administration to address the state tax treatment of PPP loans as soon as possible. 

This package is expected to be part of an early budget action that is quickly passed and signed by the governor. Similar proposals have emerged in the Legislature, namely AB 281 (Burke), but with the announcement of this deal, it is likely that state PPP tax rules will be addressed through the budget process. 

CalCPA will continue to work with policy leaders on this issue and keep CalCPA members up to date on any development. 

Please continue to monitor CalCPA communications for updates.

Updated Feb. 18, 2021