California Governor Gavin Newsom signed Assembly Bill 80 (AB 80) on April 29, 2021 to allow certain businesses to deduct their eligible expenses that were paid with forgiven Paycheck Protection Program (PPP) loans.
Prior to this new legislation, California did not allow a tax deduction of eligible expenses paid with forgiven PPP loan funds. California did not conform to the federal law that was enacted on December 27, 2020 as part of the Consolidated Appropriations Act of 2021 to permit taxpayers to deduct the eligible expenses. Please refer to our earlier blog “COVID-19 Relief Bill Clarifies Deductibility of Expenses Paid with PPP Loans” for the different treatment between federal law and California law prior to AB 80.
With the passage of AB 80, the California treatment now conforms to the federal treatment, but unlike the federal law, not all recipients of the PPP loan will be eligible. Under the California law, in order for a business to be eligible to deduct expenses paid with forgiven PPP loan funds, the taxpayer must meet both of the following requirements:
- Taxpayer cannot be a publicly traded company, and
- Taxpayer must have experienced at least a 25% reduction in gross revenues during any one quarter of 2020 compared to the corresponding quarter in 2019.
If you have any questions, please contact us at firstname.lastname@example.org regarding your tax situation. We are applying this new legislation to our eligible clients’ current filings and tax planning.