Michigan Treasury: No Income Tax on Forgiven PPP Loans

Michigan taxpayers taking part in the federal Paycheck Protection Program (PPP) will not be taxed on loans forgiven through that program, according to the Michigan Department of Treasury. This tax treatment conforms with federal tax treatment of these loans.

PPP loans, originally created under the CARES Act to provide aid to businesses impacted by the pandemic, may be partially or completely forgiven when borrowers use the loan proceeds to pay qualified expenses.

The state Treasury’s recent tax notice also provides guidance for both individual and corporate taxpayers relating to the calculation of sales apportionment, gross receipts for corporate taxpayers, and the calculation of total household resources when taking into consideration the impact of PPP loan forgiveness. Here’s a breakdown of these details:

Gross Receipts: to the extent the loan is forgiven, it is included in gross receipts. 

Total Household Resources: to the extent the loan is forgiven, it is included in total household resources.

Income Tax: Individual and corporate: conforms for taxpayers utilizing the Internal Revenue Code (IRC) in effect for the current year. As such, PPP loans that are excluded from the computation of federal income tax are excluded from the computation of the tax base under both the Individual Income Tax (IIT) and Corporate Income Tax (CIT). Likewise, business expenses paid for by PPP loans that are deductible for federal income tax purposes are deductible in computing the Michigan tax base under the IIT and CIT. 

Apportionment:

Individual Income Tax: to the extent a PPP loan is forgiven, it is a gross receipt that must be included in the individual income tax sales factor calculation. As such, pass-through entities with Michigan activity should include this information as a K1 footnote. 

Corporate Income Tax: PPP loans, including any forgiven amount, are not included in the sales apportionment factor.

Additional Resources:

To read the complete guidance from the Michigan Department of Treasury, visit their website.

Questions about how this guidance impacts your business? Please reach out to your Rehmann advisor or contact us here. You can also find tools and resources on our Empowered Planning center on our website.

Published in Tax

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