Taxpayers who accepted federal Paycheck Protection Program (PPP) loans will not be taxed on loans forgiven through that program, according to a press release last week from the Michigan Department of Treasury.
As outlined in a notice issued by the state Treasury Department, the state of Michigan will fully conform to the federal tax treatment for forgiven PPP loans when calculating the state’s individual and corporate income taxes. The federal government issued PPP loans under the Coronavirus Aid, Relief and Economic Security (CARES) Act and the Consolidated Appropriations Act.
The PPP was originally created under the CARES Act to provide cash-flow assistance to small businesses affected by the COVID-19 pandemic.
Under the program, eligible borrowers could apply for and receive federally guaranteed loans to be used for payment of payroll and certain other qualified business expenses. Borrowers who use the loan proceeds to pay qualified expenses are eligible for complete or partial forgiveness of the loan.
There are special federal income tax provisions for PPP loan recipients, as loans forgiven under the program are not subject to income tax and the qualified business expenses remain deductible.
The treatment of PPP loans in Michigan will generally have the same treatment as provided on the federal return. Forgiven loans will remain excluded from income reported on the Michigan return and expenses paid from loan proceeds will similarly remain fully deductible on the Michigan return.
Because this matches the treatment on the federal return, additional documentation substantiating the PPP loan is not required when filing a Michigan return. Taxpayers do not need to include any specific loan documentation — including proof of forgiveness or proof of expenses — with the filing of the Michigan individual or corporate income tax return.
Business taxpayers are encouraged to contact their tax preparers for details regarding the state of Michigan treatment of PPP loans and other COVID-19 tax relief.
Taxpayers with questions about their state income taxes are encouraged to use Treasury eServices.
The online platform enables taxpayers to ask state income tax-related questions when convenient and avoids waiting for a state Treasury Department customer service representative to answer the call. Individual income tax filers should use the eServices Individual Income Tax Portal, while corporate income tax taxpayers should use the eServices Business Taxes Portal.
To learn more about the PPP loan forgiveness and tax treatment, go to www.Michigan.gov/Treasury or follow @MiTreasury on Twitter.