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.
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.
Lacerte 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 (for example, using screen 14.1). Then, follow the steps below for grants to create a subtraction on the Schedule CA.
If the return has grants taxable to federal, but not the state:
The adjustment will print on Sch CA, Section C, line 24z.
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. You can enter this field on:
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.
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.
Corporate:
S-Corporate:
Partnership:
We added a checkbox to the California Miscellaneous Information screen to allow you to apply AB 80 on a client-by-client basis for those who qualify. 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.
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.
