Paycheck Protection Program
Paycheck Protection Program Loan Forgiveness
The amount of loan forgiveness under a Paycheck Protection Program (“PPP”) loan is not taxable for state income tax purposes to the extent the amount of loan forgiveness is excluded from federal gross income.
Expenses Deducted Under a Forgiven PPP Loan
The 2020 General Assembly enacted G.S. 105-153.5(c2)(20) (for individuals) and G.S. 105-130.5(a)(32) (for corporations) requiring North Carolina taxpayers to addback the amount of expenses deducted under the Code to the extent that expenses were paid with forgiven PPP loan proceeds. Importantly, the 2021 General Assembly retroactively amended G.S. 105-130.5(a)(32) and G.S. 105-153.5(c2)(20), delaying the State’s decoupling adjustment. As amended, a taxpayer is not required to add to federal income the amount of otherwise deductible expenses paid with forgiven PPP loan proceeds until tax years beginning on or after January 1, 2023. Because the General Assembly chose to suspend the State-level PPP addback until 2023, North Carolina conforms to the federal treatment of expenses paid by PPP loans for tax years 2020 and 2021.
For more information, see the Department's Important Notice: Impact of Session Law 2021-180 on North Carolina Individual and Corporate Income Tax Returns.