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How to apply California PPP and EIDL conformity

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Intuit

How to apply California PPP and EIDL conformity

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. 

Exceptions to federal conformity

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

Amounts you have entered in Expenses nondeductible to state related to a forgiven Paycheck Protection Program loan will still flow to the Schedule CA as an addition.

We 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. Make sure to adjust your input to only include those items where California differs from federal law.

California has passed AB 80, which excludes EIDL Grants and PPP expenses (if receipts meet the 25% reduction threshold) from California income. An amount is present on the Schedule C screen for Expenses nondeductible to state related to a forgiven Paycheck Protection Program loan. If the amount present contains EIDL grants or PPP expenses (and receipts meet the 25% reduction threshold), these amounts should be removed from this input. Any amounts entered for SBA subsidies paid on SBA loans, Shuttered Venue Operator Grants, or Restaurant Revitalization Grants should remain as these subsidies/grants are still taxable for California Purposes.

For business returns

We added checkboxes to the California Miscellaneous Information screen to allow you to apply AB 80 on a client-by-client basis without changing returns you already filed. We also added a specific input for taxable SBA loans and other grants (excluding EIDL), so you can include this income on the California return without altering the nonconformity calculations on multi-state return files.

Follow these steps to apply AB 80:

  1. Go to the California Miscellaneous Information screen:
    • Partnership screen 37.011
    • S-corporate screen 42.011
    • Corporate screen 45.011
  2. If the taxpayer qualifies, check the Apply AB 80 for PPP loan expenses (25% reduction threshold) box.
  3. Check the box labeled Apply AB 80 for EIDL advance grant(s).
  1. Select State & Local on the left-side menu.
  2. Click on Miscellaneous Information.
  3. Select the CA Miscellaneous Information screen.
    • In S-corporate and corporate returns, scroll down to California Miscellaneous section of the screen.
  4. If the taxpayer qualifies, check the Apply AB 80 for PPP loan expenses (25% reduction threshold) box.
  5. Check the box labeled Apply AB 80 for EIDL advance grant(s).

How does this change my return?

The amounts you've entered on the Income screen as expenses related to a PPP loan and EIDL and other assistance will no longer flow to the California return as other income.

Critical diagnostic ref. #55671, 55661, or 55667 may generate:

The checkbox to "Apply AB 80 for EIDL advance grant(s)" is checked and there is an amount present for EIDL advance on the Income screen. If the amount entered contains SBA subsidies paid on SBA loans, Shuttered Venue Operator Grants, Restaurant Revitalization Grants, or other taxable loans/subsidies/grants besides EIDL grants, these amounts should be entered for Taxable SBA and other loans/grants as these loans/subsidies/grants are taxable for California purposes.

To clear the diagnostic:

  1. Go to the screen for your tax type:
    • Partnership screen 38,
    • S-corporate screen 44, or
    • Corporate screen 47.
  2. Enter the non-EIDL amount of assistance in Taxable SBA and other loans/grants. Enter -1 to indicate zero, if applicable.
  1. Click on the diagnostic to jump to the appropriate input screen. Or, navigate to the screen for your tax type:
    • Partnership: State & Local > Schedule K > CA Schedule K. Scroll down to the "California Conformity Adjustments to Income/Schedule K" section.
    • S-corporate: State & Local > Adjustments > CA Adjustments. Scroll down to the "California Conformity Adjustments to Income/Schedule K" section.
    • Corporate: State & Local > Adjustments > CA Adjustments.
  2. Enter the non-EIDL amount of assistance in Taxable SBA and other loans/grants. Enter -1 to indicate zero, if applicable.

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