February 22, 2021
New Jersey Governor Phil Murphy has taken an important step towards helping businesses — and especially small businesses — keep their taxes at bay as they work to rebuild their operations in the wake of the Coronavirus pandemic.
In a statement earlier this month, Governor Murphy announced that Paycheck Protection Program (PPP) loans given to companies throughout the pandemic will be tax exempt at the state level. Additionally, businesses will be allowed to deduct the expenses they paid with the PPP funds, creating a tax-savings opportunity.
“This decision is designed to help already-beleaguered small businesses, which are the majority of recipients of these loans,” Governor Murphy said in a statement. “It’s no secret that New Jersey has been one of the hardest-hit states by COVID-19, and our small businesses have shouldered the brunt of it. PPP loans helped many stay afloat, and this move will provide added benefit to help them weather this storm.”
The decision, which follows similar decrees made by New York State and other states across the U.S., will benefit more than 150,000 New Jersey businesses, according to the Governor’s office. Murphy said that most of those companies obtained PPP loans of $150,000 or less. In total, New Jersey businesses secured PPP loans totaling $17.3 billion.
There had been considerable consternation ahead of the 2020 tax filing season centering on whether PPP loans would be tax-exempt. Under federal law, forgiven loans (many of the PPP loans businesses obtained have been, or will be forgiven) are considered taxable income. However, the Consolidated Appropriations Act, 2021 that Congress passed into law to extend the PPP program to a second draw also excluded PPP loans from that statute. In effect, the move allowed businesses to exclude PPP loan distributions from their income and include the expenses they paid with their loans to be deducted from their tax liability.
Well into 2021, however, some states hadn’t said whether they would follow the federal government’s lead, leaving taxpayers and businesses owners with questions unanswered. Governor Murphy has now answered those questions and paved the way for business owners to save on their 2020 taxes.
If you’re a New Jersey business owner and have some questions about New Jersey’s PPP decision, be sure to consult your Perlson LLP professional at 516-541-0022 to help you navigate this year’s tax landscape and develop a strategy that best suits your unique situation.
New York State has launched a program that aims at helping you secure the funding you need.