TRENTON, NJ – In an effort to protect small businesses from additional taxes on their federal PPP loans, legislation sponsored by Senator Troy Singleton to ensure forgiven loans are not subject to the New Jersey gross income tax was signed into law by Governor Phil Murphy on Wednesday.
“Our small businesses have been pummeled over the past year. Many of our favorite family establishments have already closed, and numerous others are at risk of shutting down,” said Senator Singleton (D-Burlington), who represents Bordentown in the Legislature and is Chair of the Senate Community and Urban Affairs Committee. “For many, the federal PPP loans were a godsend that helped them stay open. With this law, New Jersey is allowing businesses to deduct forgiven PPP loans from state taxes, providing further relief as we continue to recover from the economic impact of the pandemic.”
The new law, formerly S3234, will ensure that forgiven Payment Protection Program loans are not subject to the state’s income tax and also allow for the deduction of expenses paid for by a paycheck protection program loan even if the loan is forgiven.
Under the CARES Act, Congress clearly intended for recipients of forgiven PPP loans to be able to deduct the expenses, which lawmakers recently affirmed. Many loan recipients retained employees on their payrolls, even when there was little to no work to perform, in compliance with the intent of the program to keep people employed and off the unemployment rolls.
Under the federal program, the United States Small Business Administration approved approximately $525 billion in loans for small businesses, $17 billion of which were given to New Jersey businesses, to support payroll expenses and other non-payroll costs, such as mortgage interest and utility costs. To incentivize loan recipients to maintain existing staff, the program allowed loans to be forgiven if the borrower met certain payroll and employment retention criteria.
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