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How to enter PPP loans and EIDL grants in ProSeries

SOLVED•by Intuit•561•Updated 1 year ago

This article will help you report Paycheck Protection Program (PPP) loan forgiveness and Economic Injury Disaster Loan (EIDL) grants in ProSeries. Forgiven PPP loans and EIDL advances or grants are considered nontaxable for federal purposes.

  • Adjustments may be needed to expenses that are no longer deductible. See the Treasury and IRS Issued Guidelines for details.
  • See IRS Notice 2020-32 for additional details on the tax treatment of PPP Loan Forgiveness.
  • State adjustments may be needed if the return includes a state that doesn't conform to federal guidelines.

Follow the steps below for your return type to report the forgiven PPP or EIDL as tax-exempt income.

To enter a PPP loan statement on a 1040:

  1. Press F6 to bring up Open Forms.
  2. Type in PPP to find the PPP loan forgiveness statement, then press OK.
  3. Scroll down to the Smart worksheet and enter the information for any PPP loans forgiven for 2020 or 2021.

ProSeries will include this statement with the e-filed return. If you want to attach multiple PPP loan statements, you must create your own statement in Preparer Notes or a PDF attachment.

For partnership returns:

  1. Go to Schedule M-1 Items Worksheet.
  2. Under Income Items in Other Permanent Items (income), enter a description and the amount of forgiven loan or EIDL advance received.

The loan amounts will be reported on Schedule K, line 18b, as other tax-exempt income. An adjustment for the loan will generate on Schedule M-1, line 6. 

For S-corporate returns:

  1. Go to Schedule M-1 Items Worksheet.
  2. Under Income Items in Other Permanent Items (income), enter a description and the amount of forgiven loan or EIDL advance received.

The loan amounts will be reported on Schedule K, line 16b, as other tax-exempt income. An adjustment for the loan will generate on Schedule M-1, line 5. 

For corporate returns:

  1. Go to the Form 1120 p3-6.
  2. Scroll down to the Schedule M-1.
  3. On Line 7 below the Tax-exempt interest field enter a description and the amount of forgiven loan or EIDL advance received.

This will generate an adjustment for the loans Schedule M-1, line 7. 

For exempt organization returns (Form 990):

Per Form 990 instructions for Part VIII, line 1e,
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) established the Paycheck Protection Program (PPP) to provide loans to small businesses as a direct incentive to keep their workers on the payroll. The loans are forgiven if all employee retention criteria are met and the funds are used for eligible expenses. Amounts of PPP loans that are forgiven may be reported on line 1e as contributions from a governmental unit in the tax year that the amounts are forgiven.

This section will help you:

  • With the tax impacts of the Golden State Stimulus
  • Apply AB80 conformity for businesses
  • Understand common scenarios where income may only be taxable at the federal or state level, and how to enter them in ProSeries

California recently passed Assembly Bill 80 (AB80). In general, the bill conforms the state tax treatment for expenses paid with forgiven loans under the CARES Act or the Consolidated Appropriations Act for tax years beginning after 1/1/2019. 

Some businesses also received grants from the state that can be excluded from state income, but are taxable on the federal return. These include California Small Business COVID-19 Relief Grants, Venues Grants, and Microbusiness COVID-19 Relief Grants.

Exceptions to this federal conformity for PPP treatment include publicly traded companies and ineligible entities.

Income from SBA subsidies paid on SBA loans, Shuttered Venue Operator Grants, and Restaurant Revitalization Grants are still subject to California tax.

An entity is ineligible to deduct expenses paid with forgiven PPP funds if it didn’t have a 25% or greater reduction in gross receipts in any calendar quarter in 2020 compared to the same calendar quarter in 2019.

Note that funds received from EIDL aren’t taxable income, and aren’t subject to this 25% reduction test.

For individual returns

Where do I enter the Golden State Stimulus?

Golden State Stimulus (GSS) amounts received are not taxable to California, and unlike federal stimulus checks, were not an advanced payment of a tax credit. As such, the GSS doesn't need to be reported anywhere on the CA tax return.

The IRS hasn't issued specific guidance about including GSS payments as income for federal purposes. However, many practitioners believe that the GSS meets the conditions for the General Welfare Exclusion, and thus shouldn't be included on the federal tax return, either.

ProSeries doesn't have an input for the Golden State Stimulus. If you want to include the GSS payments as income on your client's federal return, enter them as you normally would other income. Then, follow the steps below for grants to create a subtraction on the Schedule CA.

Where do I enter CA grants that are taxable on the 1040?

If the return has grants taxable to federal, but not the state:

  1. Enter the grant as income on the activity it belongs to.
    • For example, Schedule C, in the Other income line.
  2. Open the California return.
  3. Open the California Other Income Statement.
    1. Press F6 to bring up Open Forms.
    2. Type OTH to highlight Other Income.
    3. Select OK to open the California Other Income Statement.
  4. Enter the adjustment on line 7 Small Business COVID-19 Relief Grant Program under the Subtractions column.

The adjustment will print on Sch CA, Section C, line 24z.

For business returns

Relief grants that are taxable for federal purposes but excluded from California income should be reported as other deductions on the CA return. The instructions below assume you've already entered the grant as Other Income on the federal return.

Follow these steps to enter state relief grants:

Corporate:

  1. Open the California return.
  2. Open the Other Additions/Deductions Statement.
    1. Press F6 to bring up Open Forms.
    2. Type A to highlight Oth. Add/Ded.
    3. Select OK to open the Other Additions/Deductions Statement.
  3. Under Other Deductions enter the amount and description on line 7.
  4. Your entry will flow to form 100, line 15.

S-Corporate:

  1. Open the California return.
  2. Open Form 100S p4-6.
  3. Scroll down to the Schedule K on Side 6.
  4. Enter the amount of the grant and description on the Other deductions line 12e in the CA Adjustment line.
  5. This amount will be reported on the CA Schedule K, line 10b, column c.

Partnership:

  1. Open the California return.
  2. Open Form 568 p5-6.
  3. Scroll down to Deductions section.
  4. Enter the amount and description on the Other Deductions below line 13D.
  5. Your entry will flow to form 565, line 21.

Limited Liability Company:

  1. Open the California return.
  2. Open Form 568 p5-6.
  3. Scroll down to Deductions section.
  4. Enter the amount and description on the Other Deductions below line 13D.
  5. Your entry will flow to form 568, Schedule B, line 21.

How do I apply A.B. 80 conformity?

Amounts you have entered in Other Expenses on the federal return will still flow to CA as a deduction.

We have introduced an informational diagnostic to remind you that your entry may need to be reduced or removed, depending on which type of funds it represents. You may need to adjust the amounts for California to those that are allowed.
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