The Wisconsin Department of Revenue recently announced on the WDR website a note to taxpayers regarding the Wisconsin-federal differences related to the treatment of expenses paid with PPP loan funds. It’s not good news.
The federal Consolidated Appropriations Act, 2021 (the Act, signed into law December 27, 2020) provided welcome news to business. The Act provided that expenses paid with forgivable Paycheck Protection Program (PPP) loan proceeds are deductible for federal tax purposes.
However…Wisconsin law only follows federal law prior to amendments made by the Act. Therefore, expenses incurred that are paid with the forgivable PPP funds are not deductible for Wisconsin income/franchise tax purposes. Wisconsin follows the interpretation of federal law prior to modification by the Act.
So covered expenses are FULLY deductible for federal and NOT deductible for Wisconsin. Ouch!
Other Wisconsin-Federal differences re: CARES ACT/SBA Loans:
- Subsidy Loan Payments: The Act provides that a subsidy for certain loan payments is excluded from gross income for federal purposes. For Wisconsin income/franchise tax purposes, taxpayers must include the subsidy in Wisconsin gross income. However, taxpayers may deduct expenses paid with the subsidy that would otherwise be deductible.
- EIDL Grants/Advances: The Act provides that emergency EIDL grants and targeted EIDL advances are excluded from gross income for federal purposes. For Wisconsin income/franchise tax purposes, taxpayers must include the grants or advances in Wisconsin gross income. However, taxpayers may deduct expenses paid with EIDL grants or advances that would otherwise be deductible.
- Shuttered Venue Grants: The Act provides that grants for shuttered venue operators are excluded from gross income for federal purposes. For Wisconsin income/franchise tax purposes, taxpayers must include the grants in Wisconsin gross income. However, taxpayers may deduct expenses paid with grants that would otherwise be deductible.
Unless the WI legislature gets to work and passes a bill to adopt the federal rules, Wisconsin businesses, already hurting due to COVID-19, just got hit with an unintended tax hike. At this time, there are no pending bills addressing this issue before Wisconsin’s legislature.
We will keep you abreast of any legislative tax law changes in Wisconsin.
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