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New Jersey Bill Excludes PPP Loans From Income Tax

Dated May 13, 2021

Citations: S. 3234; Chapter 90

SUMMARY BY TAX ANALYSTS

New Jersey S. 3234, signed into law as Chapter 90, excludes Paycheck Protection Program loans from state income tax and allows expenses paid for with forgiven loans to be deducted; the bill is effective immediately and retroactive to tax years beginning on or after January 1, 2020.

[Second Reprint]

STATE OF NEW JERSEY

219th LEGISLATURE

INTRODUCED DECEMBER 7, 2020

Sponsored by:
Senator TROY SINGLETON
District 7 (Burlington)
Senator ANTHONY M. BUCCO
District 25 (Morris and Somerset)
Assemblyman LOUIS D. GREENWALD
District 6 (Burlington and Camden)
Assemblyman DANIEL R. BENSON
District 14 (Mercer and Middlesex)
Assemblyman GORDON M. JOHNSON
District 37 (Bergen)

Co-Sponsored by:
Senators Oroho, Pou, Greenstein, O'Scanlon, Holzapfel, Assemblywoman Murphy, Assemblymen Karabinchak, Dancer, Bergen, Thomson, Stanley, Assemblywomen Reynolds-Jackson, DiMaso and Vainieri Huttle

SYNOPSIS

Allows deduction from tax of certain expenses when taxpayer's federal paycheck protection program loan is forgiven and excludes those forgiven loans from gross income tax.

CURRENT VERSION OF TEXT

As reported by the Assembly Appropriations Committee on February 24, 2021, with amendments.

(Sponsorship Updated As Of: 3/1/2021)

AN ACT concerning the tax treatment of forgiven federal paycheck protection program loans.

BE IT ENACTED by the Senate and General Assembly of the State of New Jersey:

1. Notwithstanding N.J.S.54A:5-1, a loan, or portion thereof, forgiven pursuant to section 1106 of the federal CARES Act, Pub.L.116-136, 1or any subsequent expansion of the federal Paycheck Protection Program, including the provision of second draw loans pursuant to section 311 of Division N of the “Consolidated Appropriations Act, 2021,” Pub. L. 116-260,1 shall not be included in the calculation of New Jersey gross income subject to tax under the New Jersey Gross Income Tax Act.

2. a. A taxpayer under the Corporation Business Tax Act (1945), P.L.1945, c.162 (C.54:10A-1 et seq.) shall not be denied a deduction 2for ordinary and necessary business expenses paid for with the proceeds of a federal Paycheck Protection Program loan2 by reason of the exclusion from entire net income under P.L.1945, c.162 of 2[a] such2 loan, or portion thereof, forgiven pursuant to section 1106 of the federal CARES Act, Pub.L.116-136 1or any subsequent expansion of the federal Paycheck Protection Program, including the provision of second draw loans pursuant to section 311 of Division N of the “Consolidated Appropriations Act, 2021,” Pub.L.116-2601.

b. A taxpayer under the 1[New Jersey Gross Income Tax Act] “New Jersey Gross Income Tax Act,” N.J.S.54A:1-1 et seq.1 shall not be denied a deduction 2for ordinary and necessary business expenses paid for with the proceeds of a federal Paycheck Protection Program loan2 by reason of the exclusion from New Jersey gross income under the New Jersey Gross Income Tax Act of 2[a] such2 loan, or portion thereof, forgiven pursuant to section 1106 of the federal CARES Act, Pub.L.116-136, 1or any subsequent expansion of the federal Paycheck Protection Program, including the provision of second draw loans pursuant to section 311 of Division N of the “Consolidated Appropriations Act, 2021,” Pub.L.116-260,1 or pursuant to section 1 of this act.

This act shall take effect immediately2 and shall apply retroactively to taxable years beginning on or after January 1, 20202.

EXPLANATION — Matter enclosed in bold-faced brackets [thus] in the above bill is not enacted and is intended to be omitted in the law.
Matter underlined thus is new matter.
Matter enclosed in superscript numerals has been adopted as follows: 
1Senate SBA committee amendments adopted January 21, 2021. 
2Assembly AAP committee amendments adopted February 24, 2021.

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