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.
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 a suggestion 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
Relief grants that are taxable for federal purposes but excluded from California income should be reported as other deductions on the CA return.
Follow these steps to enter state relief grants:
- On the left-side menu, select State & Local.
- Click on Adjustments, and select the CA Adjustments screen.
- Scroll down to the California Subtractions section.
- Enter the amount and a description in Other deductions (Click on button to expand). Your entry will flow to form 100, line 15.
- Go to the Input Return tab.
- From the left of the screen, select Schedule K and choose Income and Deductions.
- Locate the Income (Loss) section.
- Click inside of the Other income (loss) (Click on button to expand) field.
- Select H = Other income (loss) from the K-1 Code (Click on arrow to select) dropdown list.
- Enter the grant amount as a negative number in the St. if diff. (-1 = none) column.
- This amount will be reported on the CA Schedule K, line 10b, column c.
- From the left of the screen, select State & Local and choose Adjustments.
- Select CA Adjustments.
- Enter the grant amount as a positive number in Other additions (Click on button to expand).
- This entry prevents the Schedule K adjustment from generating on 100S, line 7.
- Enter the grant amount as a positive number in Other deductions (Click on button to expand).
- If the balance sheet is out of balance by the amount of the relief grant:
- From the left of the screen, select Balance Sheet, M-1, M-2, M-3 and choose Schedule M-2.
- Scroll down to the Other Retained Earnings (Schedule L) section.
- Enter the grant amount in Additions to other retained earnings.
- On the left-side menu, select State & Local.
- Click on Schedule K, and select the CA Schedule K screen.
- Scroll down to the California Conformity Adjustments section.
- Enter the amount and a description in Other California deductions (Click on button to expand). Your entry will flow to form 565, line 21, or form 568, Schedule B, line 21.
Follow these steps to apply AB 80:
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.
- Select State & Local on the left-side menu.
- Click on Miscellaneous Information.
- Select the CA Miscellaneous Information screen.
- In S-corporate and corporate returns, scroll down to California Miscellaneous section of the screen.
- If the taxpayer qualifies, check the Apply AB 80 for PPP loan expenses (25% reduction threshold) box.
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:
- 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.
- Enter the non-EIDL amount of assistance in Taxable SBA and other loans/grants. Enter -1 to indicate zero, if applicable.