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Division of Taxation

Loan and Grant Information

Cancellation of Debt (COD)

For Income Tax (GIT) purposes, cancellation of debt (COD) or forgiveness of debt income is not subject to tax. For example, student loan debt forgiveness. Do not include COD or forgiven loan amounts 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.


Paycheck Protection Program (PPP) Loans

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.


Small Business Administration (SBA) Loans

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.


Covid Related Grants Are Generally Tax Exempt; Other Grants Generally Follow the Federal Income Tax Treatment

Covid related grants are not taxable, for both Gross Income Tax and Corporation Business Tax and should not be reported as income on both the New Jersey Gross Income Tax and Corporation Business Tax returns.

However, with respect to other types of grants not providing COVID relief, there is no specific category of taxable income that grants would fall into under for New Jersey Gross Income Tax, so these grants are not taxable and should not be reported as income on a New Jersey Gross Income Tax return. For Corporation Business Tax, if the other types of grants not providing COVID relief are included in federal taxable income, they are included in entire net income pursuant to N.J.S.A. 54:10A-4(k) and should be reported as income on a New Jersey Corporation Business Tax return.


Last Updated: Friday, 10/07/22