The federal Paycheck Protection Program (PPP) was established by the federal CARES Act (Coronavirus Aid, Relief, and Economic Security Act) in 2020 in response to the economic impact of COVID-19 to help small businesses keep employees on their payroll during the pandemic.
For Gross Income Tax purposes, any or all of a PPP Loan, forgiven through the federal Cares Act or federal Paycheck Protection Program, is not taxable. These amounts should not be reported on an Individual Income Tax return (NJ-1040, NJ-1040NR, NJ-1041).
For Corporation Business Tax and Gross Income Tax purposes, a taxpayer is still allowed to deduct ordinary and necessary business expenses, even if they were paid for with the proceeds of a forgiven PPP loan.
P.L. 2021, c.90. (enacted May 11, 2021) codifies the tax treatment set forth in our original published guidance regarding PPP loans remains intact.
Any payments that the SBA makes for principal, interest, and fees are considered to be cancellation of debt. This is because the payments all reduce the amount of the loan in some way.
This is true whether the payment is made for a loan in deferment or not in deferment.
The HHS grants received under the CARES Act are not excluded under federal law and are taxable income at the federal level (IRC §61). New Jersey follows this federal treatment because there is no separate New Jersey exemption for these grants and, therefore, should be reported as taxable income for New Jersey.
For Income Tax (GIT) purposes, cancellation of debt (COD) or forgiveness of debt income is not subject to tax and should not be reported on an Individual Income Tax return.
For Corporation Business Tax (CBT) purposes, COD income is taxable when it is subject to tax for federal purposes.
Grants are generally tax exempt for New Jersey purposes. If a grant is excluded for federal tax purposes, it is usually excluded for New Jersey purposes.
New Jersey Economic Development Authority (NJEDA) grants and tax credits are not subject to tax under the New Jersey Gross Income Tax Act and the Corporation Business Tax Act. The same is also true for grants; including, but not limited to; county issued COVID-19 related grants, shuttered venue operator grants, Division of Fish and Wildlife CARES Act Fisheries Assistance Program grants, Child Care Provider COVID-19 Stabilization Grants, and Restaurant Revitalization Fund grants.
Do not report excluded grant or credit income on a New Jersey Gross Income Tax or Corporation Business Tax return. However, some grants to assist businesses may be considered taxable in accordance with the federal tax treatment, and therefore may also be reportable on a New Jersey Gross Income Tax or Corporation Business Tax return.