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.  

On April 1, 2021 Massachusetts Governor Charlie Baker signed into law legislation allowing owners of pass-through entities treated as partnerships with forgiven Paycheck Protection Program (PPP) loans to receive the same tax treatment as corporations (i.e., forgiven PPP loans are excluded from gross income).  The legislation clarifies tax treatment as follows:

PPP Loans

  • Massachusetts personal income taxpayers may exclude PPP loan forgiveness from gross income for 2020.  
  • Massachusetts corporate excise taxpayers may exclude PPP loan forgiveness from Massachusetts gross income for 2020.
  • If your expenses paid with your PPP loan are deductible on your federal return (personal or corporate), they may also be deducted on your Massachusetts return.

EIDL Grants (Advances)

  • Massachusetts personal income taxpayers may exclude EIDL grants from gross income for 2020. 
  • Massachusetts corporate excise taxpayers may exclude EIDL grants from gross income for 2020.
  • If your expenses paid with your EIDL grants are deductible on your federal return (personal or corporate), they may also be deducted on your MA return. 

SBA Debt Relief Subsidies

  • Massachusetts personal income taxpayers may exclude debt relief subsidies from gross income for 2020. 
  • Massachusetts corporate excise taxpayers may exclude debt relief subsidies from gross income for 2020.
  • If your expenses paid with debt relief subsidies are deductible on your federal return (personal or corporate), they may also be deducted on your MA return. 

Massachusetts Growth Capital Corporation (MGCC) Grants

  • Businesses that received a grant through the MGCC must include the grant amount in gross income.
  • If your expenses paid with grant funds are deductible on your federal return (personal or corporate), they may also be deducted on your MA return. 

Please consult with your financial advisor about your specific situation.  The law, as currently written, addresses only 2020.  Legislation is pending to address 2021 and 2022.

Stay safe and healthy!

Yours truly,

Walter & Shuffain, P.C.