(The Center Square) – New Jersey will exempt Paycheck Protection Program (PPP) loans from state taxes and allow grantees to deduct business expenses they paid using tax-exempt loans.
“This move is designed to help small businesses already under siege, which are the majority of recipients of these loans,” Gov. Phil Murphy said in a press release. “It’s no secret that New Jersey has been one of the hardest hit states by COVID-19 and our small businesses have paid the price. PPP loans have helped many people stay afloat and this move will bring an added benefit to help them weather this storm. “
Congress created the CARES (Coronavirus Aid, Relief, and Economic Security) loans to help small businesses keep their employees on their payrolls during the pandemic. The federal government can cancel some or all of the loans for recipients who meet certain conditions.
Last month, the state Senate put forward a bill on the subject. S-3234 would exempt PPP loans canceled by the federal government from New Jersey gross income tax (GIT).
State officials said they were taking action “under existing authority” and did not need legislation.
For 2020 taxes, “related expenses” paid using PPP loans will be deductible for corporate income tax and corporate tax (CBT) purposes, officials said. Canceled loans will not be subject to any tax.
New Jersey companies received 155,851 PPP loans totaling $ 17.3 billion. Of these, 133,961, totaling $ 4.6 billion, were for less than $ 150,000, while 19,066 totaling $ 6.6 billion were approved for an amount between $ 150,000 and $ 1 million.
“PPP loans have played a vital role in helping Main Street stay afloat and keep residents employed,” State Treasurer Elizabeth Maher Muoio said in a press release. “Given that the vast majority of these loan recipients are small businesses, the decision to exempt these loans and deduct the proceeds from tax made sense as we continue to fight the protracted impact of COVID.”
While federal law “generally treats canceled loans as taxable income,” according to the Office of Legislative Services, the CARES Act exempted canceled PPP loans from federal income tax. Additionally, according to a bill statement, the IRS issued a “denying tax deductions for expenses paid” notice with a canceled PPP loan.
“As we continue to fight the economic and public health crises caused by COVID-19, it is critically important that we ensure that Paycheck Protection Program (PPP) loans will not be subject to taxation. of state, ”said Assembly Majority Leader Louis Greenwald, D. Camden / Burlington, said in a press release. “… We must do all we can to help businesses struggling with the pandemic and position them to recover when the public health crisis subsides. “