By Stephen R. McDonnell, Esq. On July 11, 2022, Pennsylvania passed Act 68, which limits…
On February 5, 2021, Governor Wolf signed into law Act 1 of 2021 (SB 109), which, among other things, provides clarity and relief for Pennsylvanians who received Paycheck Protection Program (PPP) funds. It was made clear the forgiveness of a PPP loan will not result in Pennsylvania personal taxable income.
Generally, when your debt is canceled, forgiven, or discharged for less than the amount you owe, the amount of the canceled debt is taxable as income. Many individuals borrowed PPP funds with the expectation to have the loan ultimately forgiven, thus a larger than normal tax bill resulting from the forgiveness haunted many borrowers.
Up to this point, it was unclear whether the forgiveness of a PPP loan resulted in taxable income in Pennsylvania. At the federal level, it had previously been made clear that the forgiveness of a PPP loan does not result in taxable income for federal income tax purposes. Prior to the signing of SB 109, it was the position of the Pennsylvania Department of Revenue that forgiven PPP loans would be treated as taxable income for Pennsylvania personal income tax purposes. Fortunately, SB 109 changed that by conforming Pennsylvania to the federal stance of excluding forgiven PPP loans from taxable income.
For corporations taxed in Pennsylvania, this was less of a concern. Unlike Pennsylvania personal income tax, the corporate net income tax base in Pennsylvania already conforms to the Federal treatment of this tax. Consequently, it was already clear that PPP loans that are forgiven would not be taxable under the Pennsylvania corporate net income tax base. SB 109 confirmed and solidified that fact as well.
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