MASS Finally Conforms With Federal Rules For PPP Loans and EIDL Advances

During March, Massachusetts passed legislation to make PPP Loan Forgiveness and EIDL Grants not taxable to Massachusetts business owners. Other grants, including the those issued by the MGCC or the HHS, continue to be taxable for federal and Mass taxes.

According to the Mass Department of Revenue at:  Tax Filing Season Frequently Asked Questions | Mass.gov:

PPP Loans:

Loan forgiveness income is excluded from gross income for personal income taxpayers for 2020 under An Act Financing a Program for Improvements to the Unemployment Insurance Trust Fund and Providing Relief to Employers and Workers in the CommonwealthSubsequently, the Consolidated Appropriations Act of 2021 (CAA 2021), provided that PPP loan recipients may deduct expenses paid for using PPP loan amounts, even if the PPP loans are ultimately forgiven.

EIDL Advance:

EIDL grant amounts are not taxable for personal income taxpayers, including unincorporated businesses reporting income and expenses on Schedule C, partners in a partnership, and individual shareholders of an S corporation. Recently passed Massachusetts legislation excludes EIDL grant amounts awarded pursuant to Section 1110 of the CARES Act or Section 331 of the Economic Aid Act for 2020 for taxpayers subject to the Massachusetts personal income tax. Therefore, personal income taxpayers do not need to report these amounts. Whether you are subject to the personal income tax or the corporate excise, if your expenses are deductible on your federal return, they are also deductible on your Massachusetts return.

Other Grants:

Federal law requires that grants to businesses be included in gross income.  The IRS has specifically stated that if governments use CARES Act Coronavirus Relief Fund payments to establish grant programs to support business, businesses receiving such grants must include the grant amount in their federal gross income.  Because these grants are taxable under federal law, they are also taxable under Massachusetts law. 

Anyone who filed their 2020 Massachusetts tax returns reflecting the PPP loan or the EIDL Advance as taxable income can amend their tax returns to have those taxes refunded.  Please reach out to your tax preparer if you think your 2020 Mass returns might have picked up PPP loans or EIDL Advances as taxable income.