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.
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.
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:
- Go to the California Miscellaneous Information screen:
- Partnership screen 37.011
- S-corporate screen 42.011
- Corporate screen 45.011
- If the taxpayer qualifies, check the Apply AB 80 for PPP loan expenses (25% reduction threshold) box.
- 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:
- Go to the screen for your tax type:
- Partnership screen 38,
- S-corporate screen 44, or
- Corporate screen 47.
- Enter the non-EIDL amount of assistance in Taxable SBA and other loans/grants. Enter -1 to indicate zero, if applicable.