One of the greatest concerns for small business owners following COVID-19 stimulus legislation last year was whether loans forgiven under the Paycheck Protection Program (PPP) would be taxable. While Congress never intended the loans to be taxed, the IRS determined that the loans indeed would be subject to federal taxation. To the collective relief of taxpayers, the Consolidated Appropriations Act signed into law last December clearly states that loans forgiven under the PPP will not be subject to federal taxation.
Now that the federal controversy is settled, where do the states stand on this issue? Like many state and local tax issues, it depends where the business is located. Some states are following the federal example, while others have indicated they will tax all or a portion of PPP loan income.
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