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How Will PPP Loans & EIDL Advances Affect My 2020 Taxes?

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Erica Seppala

Erica Seppala

Erica is a writer based in Greenville, South Carolina. She is a graduate of Limestone College. Initially determined to be an accountant, she put away the calculator and picked up a laptop to pursue her dream of being a writer. Erica has spent the past 10 years writing blogs and articles for hundreds of private clients, and she loves sharing her love of research and the written word with everyone around her.

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13 Comments

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    Jeff J. Lewis

    Thanks for sharing such a detailed article about How Will PPP Loans & EIDL Advances Affect My 2020 Taxes? keep up the good work!

      Jason Rose

      Don’t forget about Enrolled Agents (EA) whose specialty is taxes. There are many good CPA’s who work with taxes, but just because an accountant is a CPA does not necessarily mean that they specialize in taxation. Do your research in advance.

      In addition, be aware that your state law can be vastly different from Federal Law. Some states completely decoupled from the CARES Act, some states adhere to only SOME of the CARES Act, and some states adopted all of the provisions of the CARES Act. Know what your state laws are for your situation.

      Finally, find a solid tax preparer for this year. The CARES Act provided many sweeping changes, and then Dec 27th, 2020 changed many of the rules. Advice given to clients in May of 2020 changed when the same question was asked in January of 2021. This is oversimplifying it, but the tax laws are almost a moving target this year.

        staci cogar

        Will receipt of the ERC reduce wages/taxes deductible on the employers federal tax return or will it be treated similar to the PPP loans forgiven?

          Jessica Dinsmore

          Hi Staci,

          The IRS says:

          An employer receiving a tax credit for qualified wages, including allocable qualified health plan expenses, does not include the credit in gross income for federal income tax purposes. Neither the portion of the credit that reduces the employer’s applicable employment taxes, nor the refundable portion of the credit, is included in the employer’s gross income.

          You can check out FAQs number 85 and 86 for more information on how the ERTC will affect your federal tax return.

            Thomas J. Brenstein

            I have a question and can’t find the subject touched upon anywhere. If you applied for PPP loan and also had outstanding SBA loan, PPP automatically added 6 months of monthly loan payments due on top of your PPP loan amount. When you apply for PPP loan forgiveness, those SBA loan payments are not included on the form. How do you treat those SBA loan payments provided under PPP stimulus loan program? Taxable? Exempt? Can you shed any light please..

              This comment refers to an earlier version of this post and may be outdated.

              Jessica Dinsmore

              Hi Thomas,

              If you are referring to the SBA’s debt relief program that pays six months of your existing SBA loan, there isn’t any official SBA guidance on that, unfortunately. However, several reputable sources state that per the IRS Tax Code, these payments should be considered taxable income.

                Shane Knudtson

                FYI, under the Consolidated Appropriations Act, businesses that have received PPP loans are now eligible for the Employee Retention Credit. It does not matter whether or not you paid back your PPP loan, as stated in your article. Also, this is retroactive to the CARES Act (March 13th).

                  This comment refers to an earlier version of this post and may be outdated.

                  Jessica Dinsmore

                  Hi Shane,

                  Thanks very much for your comment! We’ve updated the post with the most current information available to us.

                    Caroline Eddinger

                    Loans aren’t taxable ever. So the EIDL is not taxable. Don’t tell people that. Also I find nowhere in the Consolidated Appropriations Act of 2021 anywhere that EIDL grants are not taxable. I really don’t think you are qualified to be delivering tax advice.

                      This comment refers to an earlier version of this post and may be outdated.

                      Jessica Dinsmore

                      Hi Caroline,

                      There have been a lot of changes throughout this process and we do our very best to get our content updated as soon as we are made aware of a change (updated again yesterday). Unfortunately, the IRS and SBA have been extraordinarily vague, so much is left open to interpretation until clarity is provided. Thanks very much for your comments- we’ve combed through the relevant posts and updated them with the most current information available to us.

                        This comment refers to an earlier version of this post and may be outdated.

                        Rick Ma

                        Thank you for this nice and detailed article. My question is regarding if the EIDL advance (the $1,000/employee) is taxable or not. You said it is taxable while other authors like Alan Gassman and Rachel Most at Wipfli all said it is not taxable as a result of the Consolidated Appropriations 2021. Would you please kindly comment on where the discrepancies of interpretation maybe? Thank you in advance.

                          This comment refers to an earlier version of this post and may be outdated.

                          Jessica Dinsmore

                          Hi Rick,

                          Good catch! Yes, EIDL Advances are no longer counted as taxable income, but EIDLs themselves are still taxable income. Unfortunately, there is a lot of room for interpretation discrepancies in the SBA documents! We’ve updated our post to reflect this change. Thanks so much for posting.

                            This comment refers to an earlier version of this post and may be outdated.

                            ALI

                            In regards to EIDL Advance (grant of $1000 per employee), if it was considered taxable, you should be receiving a 1099-G document indication the taxable amount in Box 6.
                            I’m not an accountant, but a business owner who received an EIDL Advance, a PPP loan that was forgiven and a City Grant in 2020. I only received a 1099-G from my city with the TAXABLE grant amount in BOX 6, and didn’t receive any other documents regarding other income.
                            Thanks
                            Ali

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