Yesterday, Governor Gavin Newsom, Senate President pro Tempore Toni G. Atkins and Assembly Speaker Anthony Rendon announced that they have reached an agreement on a package of immediate actions that will speed needed relief to individuals, families and businesses suffering the most significant economic hardship from the COVID-19 Recession.

The package includes an agreement to partially conform California’s tax law to the new federal tax treatment for loans provided through the Paycheck Protection Plan (PPP). More than 750,000 PPP loans were taken out by California small businesses. The agreement allows companies to deduct up to $150,000 in expenses covered by the PPP loan. All businesses that took out loans of $150,000 or less would be able to maximize their deduction for state purposes. Larger firms that took out higher loans would still be subject to the same ceiling of $150,000 in deductibility.

This tax treatment would also extend to the Economic Injury Disaster Loans.

While the legislative language has yet to be published, this package is expected to be part of an early budget action that is quickly passed and signed by the governor. Similar proposals have emerged in the Legislature, namely AB 281 (Burke), but with the announcement of this deal, it is likely that state PPP tax rules will be addressed through the budget process.

We will continue to monitor the situation and provide updates as we receive them. In the meantime, if you have questions, please contract your Linkenheimer CPA.