Iowa Department of Revenue Announces Tax Rulings on PPP Loans | Iowa
Recipients of loans in 2020 or later under the CARES Act Paycheck Protection Program that have been canceled and excluded from federal gross income will not pay Iowa taxes on that income for the tax year 2020 or later, the Revenue Ministry announced on Feb.3.
In accordance with 2020 Iowa Acts, House File 2641, section 109, the state will also exclude income for canceled PPP loans for taxpayers in the tax year whose 2019 tax year ended after March 27, 2020. .
Articles 276 (a) and 278 (a) of section N of the Federal Consolidated Appropriations Act of 2021, promulgated on December 27, 2020, stipulated that “no deduction shall be refused, no tax attribute shall be reduced and no increase basis will be denied, due to the income exclusion for canceled PPP loans, ”and Iowa then ruled that taxpayers should treat all PPP loans and related expenses the same as they would in federal income tax returns.
“The guidelines will state that Iowa is in full compliance with the Consolidated Appropriations Act, 2021 for tax years beginning on or after January 1, 2020, meaning that taxpayers will be able to take all of the same deductions for expenses paid with these loans for Iowa purposes. they can for federal purposes on their 2020 returns, ”Ben Clough, the Iowa Department of Revenue’s policy director for corporate income tax, told The Center Square in an email.
“However, Iowa has not complied with these changes for tax years beginning before January 1, 2020, so fiscal 2019 filers will be required to follow guidelines issued by the IRS before. the CAA, 2021, and will not be allowed to take deductions for business expenses paid using these loans, ”Clough said.
“My answers are general based on the facts available to me and the laws in effect today, and may not take into account all possible factual scenarios. These responses are my own interpretations and are not legally binding on the Department, ”said Clough.
Taxpayers will not be able to deduct business expenses in the 2019 tax year that were paid using canceled or ‘expected to be forgiven PPP loans. And must follow IRS Notice 2020-32, Rev. Rul. 2020-27, and Rev. Proc. 2020-51, said the Feb.3 announcement.
Clough said in the email that the legislature is still considering changing business expense deductions for 2019.
“I know of at least two bills that have already been proposed to attempt to ‘fix’ this problem for fiscal year 2019 filers by retroactively complying with CAA 2021 treatment for these business expense deductions for 2019, but up to one of these. invoices are signed into law, fiscal 2019 filers should follow ministry guidelines when completing their returns, ”Clough said.
“The expenses that were paid for by the P3 program will still be able to be charged against your income, which will reduce your taxable total,” said Lisa Shimkat, director of the State of Iowa at the US Center for Small Business Development. , at The Center Square.
“It was good news for our small businesses in the state,” continued Shimkat. I recommend all business owners who have received a P3 or other type of federal or state assistance to quickly contact their tax preparer so they can be sure they are following the rules that have been put in place. “
Small Business Administration Iowa District Office District Manager Jayne Armstrong told The Center Square in a phone interview about the impact of PPP loans and related tax rulings on small businesses in Iowa who struggled during the COVID-19 pandemic.
“[L]looking at the ramifications of it all, there was a lot of concern that “Gee, are we going to be taxed for all of this?” And I think a lot of small businesses thought that would be just insulting after all because they’re the heart of the economy and everything, and that it would just hurt small businesses and their bottom lines more, ”said Armstrong. “At the same time, there is so much relief there. At some point, we need to consider limiting some of these issues.
SMDC Iowa posted information on second-draw PPP loans, the application period for which is open until March 31.