Walter & Shuffain - Certified Public Accountants & Business Advisors

Massachusetts and PPP Loan Forgiveness

Massachusetts and PPP Loan Forgiveness

Section 1106 of the CARES Act provides loan forgiveness to small businesses for certain loans made pursuant to the Paycheck Protection Program (“PPP”) under the Small Business Act.  Under the Act, any amount of cancelled indebtedness that would otherwise be includable in the gross income of the borrower under the Code for federal income tax purposes is excluded from gross income. The Consolidated Appropriations Act, 2021 (H.R. 133) (CAA) which took effect on December 27, 2020 confirmed this.

When Federal Laws change, in Mass. there is an automatic mandate that Corporations will follow current Federal rules.   However, for individuals whose business income comes from a Schedule C or a pass through entity, Massachusetts generally follows the Code as amended and in effect on January 1, 2005.  Therefore, for a borrower subject to Massachusetts personal income tax, any amount forgiven under Section 1106 of the Act is includable in gross income and subject to tax, and there is no disallowance of deductions attributable to the payment of expenses resulting in the forgiveness of the loan.  

What does this mean?
Corporate Taxpayers (C Corporation)
Massachusetts follows the Federal.

  • Expenses are deductible in the year incurred
  • No income on the forgiveness of the loan.

Corporate Taxpayers (S Corporation)
For the income that is passed through to the shareholders:

  • Expenses are deductible in the year incurred
  • Income on the forgiveness MUST be recognized in the year the loan is forgiven.  

If gross income is greater than $6,000,000, not including the PPP loan forgiveness, the income that is taxed on the S Corporation tax return:

  •  Expenses are deductible in the year incurred
  •  No income on the forgiveness of the loan.

Partnerships and Individuals
Massachusetts does not follow the Federal.  

  • Expenses are deductible in the year incurred
  • Income on the forgiveness MUST be recognized in the year the loan is forgiven.  

Currently, Massachusetts State Senator Eric Lesser filed Bill SD.172, An Act providing financial relief to small businesses during the COVID-19 pandemic that addresses the issue. Bill SD.172, if passed would allow individuals to conform to the Federal Law as well and eliminate the need to include the forgiven debt in income while still taking the deductions as before.  Here is an article fron the January 22, 2021, Boston Globe referring to the Bill.

Please consult with your financial advisor about your specific situation.

Stay safe and healthy!

Yours truly,

Walter & Shuffain, P.C.