PPP Loans and Wisconsin Treatment
Although Wisconsin is specified in the title, this is way more universal than you'd think. Because of the PPP loans, The Consolidated Appropriations Act 2021, or Act, made many law changes that may affect some 2020 returns.
1) Any EIDL grants and loan forgiveness are nontaxable and the expenses paid with these funds are deductible.
2) Although PPP loan forgiveness was nontaxable under the prior law, with Act, states taxpayers are allowed to deduct expenses even though they are connected to nontaxable income.
3) The Earned Income Tax Credit can be computed using the prior year’s earned income but only if it was higher than the current year’s earned income.
Again, this is specific to Wisconsin, every state have its own taxation rules and regulations and many states do not, and will not, follow this federal treatment. Initially, Wisconsin did not follow any federal involvement. Normally, they look at a change and choose which one makes sense for them. In this case, the law change happened so late in the year Wisconsin couldn't meet in time to discuss which changes they would implement. Because of this, on February 18, 2021, the governor signed into law Act 1 and Act 2, which retroactively adopted many of the federal provisions, regardless of if they had been chosen in the past or not. For this reason, anyone who prepared a Wisconsin return might need to update their return to follow the new laws found in Act 1 and Act 2.
Every state is different and adheres to their own taxation laws, which is why tax professionals much keep up on what is happening at a state level. New York and New Jersey will be adhering to the federal provisions.
