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CA Allows $150K in Deductions Related to Expenses Covered by PPP Loans

by Alex Thacher, Stephanie Shorkley
February 24, 2021

On February 17, Governor Newsom and state legislative leaders announced their agreement on a package that will provide pandemic-related relief to California taxpayers.  This is the first time California has commented on its treatment of expenses paid with PPP loan forgiveness proceeds.  Although it is not a 100% deduction, the agreement will allow up to $150,000 of expenses paid with PPP loan forgiveness proceeds to be deductible for any size company.

There is still uncertainty where the bill is in the legislative process and which tax years will be impacted.  We will update our PPP Loan Federal and State Tax Implications matrix with any further guidance.

Insights

Although it is not a full deduction, this is the first step the state has made to address the issue.  It is possible that with time California will allow a full deduction, but for estimate and provision purposes, the $150,000 cap should be used.  For California R&D credit purposes, wage expenses paid with forgiven PPP loan proceeds are eligible as qualified research expenses (QREs) only up to the $150,000 limit.

If you have any questions or need assistance, please contact our experts.

February 24, 2021

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Authors
Alex Thacher - Partner, Tax - San Jose, CA | Armanino
Partner
Stephanie Shorkley - Tax, San Ramon | Armanino
Senior Manager
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