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CPA Now
Feb 09, 2021

Forgiven PPP Loans Now Exempt from Pa. Personal Income Tax

Peter CalcaraAlexandra FabianBy Peter N. Calcara, PICPA vice president, government relations, and Alexandra C. Fabian, manager, government relations


The vitality of the voice of the CPA profession, led by 20,000 PICPA members, was on full display recently in Harrisburg as the PICPA scored a major legislative victory. State lawmakers passed legislation that ensured that federal Paycheck Protection Program (PPP) loans that have been forgiven would be exempt from state personal income tax (PA PIT).

When the U.S. Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in March 2020, it provided for PPP loans that had the potential for tax-free loan forgiveness. Although it was Congress’s intent, the CARES Act was silent on whether the expenses associated with forgiven loans still could be deducted for tax purposes. In response to calls for additional direction, Congress passed legislation in December that clarified that expenses associated with forgiven loans are deductible as well.

Harrisburg capitol buildingThis settled uncertainty for corporations since Pennsylvania’s corporate net income tax (CNIT) conforms to the federal tax base; therefore, PPP loan forgiveness is not taxable under Pennsylvania CNIT. Likewise, expenses paid with PPP loans were deductible. Matter solved … for corporations, not necessarily for small businesses that pay taxes through PA PIT.

The PA PIT does not conform to the federal individual income tax base, so PPP loan forgiveness would not automatically be excluded from tax. The PICPA got to work on legislation to put small businesses on the same footing as corporations.

The legislation PICPA was seeking at the close of last session (House Bill 2497) did not make it to the governor’s desk before time ran out, which meant a solution had to be reintroduced this session. The new version of the bill, House Bill 385, was sponsored once again by Rep. George Dunbar (R-Westmoreland) and introduced in January. The prospect of beginning the process all over again was daunting; and given the March 15 filing due date, prospects for a quick resolution seemed dim.

If there is anything one learns in government relations work, it is to expect the unexpected. The process can be unpredictable, but that also means opportunities arise when you least expect it. And when opportunity knocks, you have to be prepared to answer quickly.

At the beginning of February, at the urging of the PICPA and many of its members, state lawmakers worked quickly to address the PPP loan forgiveness issue. Provisions contained in House Bill 385 were used to amend Senate Bill 109, a $900 million COVID-19 relief package, that had already passed one chamber and was poised to move to the governor’s desk. The PICPA-supported PPP loan forgiveness provision was unanimously adopted by both the House and Senate, and Gov. Wolf signed Senate Bill 109 into law on Feb. 5. It is now Act 1 of 2021.  

This legislative exercise demonstrates the significance of PICPA’s advocacy efforts and the importance of our members to the process. As the PICPA was steadily advocating for this legislative change, lawmakers needed to hear from their constituents for it to resonate. In the days leading up to the vote, the PICPA alerted members to take action and have their voices heard. Once lawmakers understood the significance to taxpayers, they moved quickly.

There are many people to thank for this accomplishment. At the top of the list is Rep. Dunbar. He has fought for a legislative solution for many months, and we cannot thank him enough for his diligence and perseverance.

While we have achieved this victory, legislators need to continue hearing from CPAs. The PICPA government relations team encourages you to take advantage of upcoming opportunities to speak directly to state senators and representatives about the newly enacted PPP legislation and the proposed 2021-2022 Pennsylvania budget.

At one of our six PICPA members-only webinars, learn how lawmakers plan to accelerate our state's economic recovery, gain insight into the agenda for the upcoming legislative session, and possibly have your questions addressed.


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Disclaimer
Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional.
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