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How Will PPP Loans & EIDL Advances Affect My State & Federal Taxes?

Trying to decipher IRS instructions regarding PPP loans and EIDL Advances can be confusing. We break the tax implications down for you so that it's easily digestible.

    Erica Seppala
  • UPDATED

Advertiser Disclosure: Our unbiased reviews and content are supported in part by affiliate partnerships, and we adhere to strict guidelines to preserve editorial integrity.
Erica Seppala

Erica Seppala

Expert Analyst & Reviewer at Merchant Maverick
An expert in accounting, finance, and point of sale, Erica has been researching and writing about all things small-business since 2018. Erica's insights into personal and business finance have been cited in numerous publications, including MSN, Real Simple, and Reader's Digest. She is a graduate of Limestone College.
Erica Seppala
View Erica Seppala's professional experience on LinkedIn.

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28 Comments

Responses are not provided or commissioned by the vendor or bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the vendor or bank advertiser. It is not the vendor or bank advertiser's responsibility to ensure all posts and/or questions are answered.

    Angela Harrell

    Hello Jessica: Thank you very much for your article; it was very informative and detailed. My question is: If you took out either a PPP loan, EIDL loan or EIDL Advance (the grant) and the employee you paid was yourself, how is it viewed under the federal and state (Ohio) tax laws? I guess I’m trying to figure out if you are NOT taxed as the employer because the payments are considered a business expense but you ARE taxed on the amounts because you were your own employee? The business is a sole proprietorship and the owner is the employer AND the employee. Also, can you file the ERC AND deduct the payroll amounts as a business expense if you are your own employer and employee? Thank you, I enjoyed your article!!

      Jessica Dinsmore

      Hi Angela,

      Thanks so much for your kind feedback! To answer your question: Our understanding is that a sole proprietor that paid themselves with PPP funds or EIDL funds does NOT include this in their taxable income. But it is not a bad idea for you to consult with a CPA or tax pro for specifics on your individual tax situation. In this particular situation, you will also be unable to claim the ERC for your own wages. It would have to be for wages paid to someone else. Hope that helps!

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      Our unbiased reviews and content are supported in part by affiliate partnerships, and we adhere to strict guidelines to preserve editorial integrity. The editorial content on this page is not provided by any of the companies mentioned and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author’s alone.

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