Badger InstituteBadger Institute
  • Home
  • Issues
    • Taxes
    • Education
    • Crime & Justice
    • Spending & Accountability
    • Economy & Infrastructure
    • Licensing
    • Healthcare
    • Civil Society
  • Mandate for Madison
  • Research
  • Magazines
    • Diggings
    • Wisconsin Interest
  • Events
  • Media
    • Podcast
    • Fact Sheets
    • Viewpoints
    • Press Releases
    • Badger in the News
    • Video
    • Audio
    • Testimony
  • About
    • Our Mission
    • Board of Directors
    • Team
    • Visiting Fellows
    • America’s Future
    • Careers
  • Newsletter
  • Donate
  • Contact Us

Subscribe for Updates

Get the latest news and updates from Badger Institute.

What's New

Wisconsin lawmakers in the dark on broadband

March 16, 2023

The underfunded part of Wisconsin public schooling

March 16, 2023

If we don’t pay for roads, we don’t get mobility

March 9, 2023
Facebook Twitter YouTube LinkedIn Instagram
TRENDING:
  • Wisconsin lawmakers in the dark on broadband
  • The underfunded part of Wisconsin public schooling
  • If we don’t pay for roads, we don’t get mobility
  • Assembly Speaker calls for tolling to fund Wisconsin infrastructure
  • Foreseeing the Future of Wisconsin’s Flat Tax
  • Amid illiteracy, where was the urgency?
  • Calls to Police from MPS High Schools Up Dramatically Again
  • Wisconsin voters will be asked about welfare work requirements
  • Donate
  • Newsletter
  • Contact
Facebook Twitter YouTube LinkedIn Instagram
Badger InstituteBadger Institute
SUPPORT OUR MISSION
  • Issues
    • Taxes
    • Education
    • Crime & Justice
    • Spending & Accountability
    • Economy & Infrastructure
    • Licensing
    • Healthcare
    • Civil Society
  • Mandate for Madison
  • Research
  • Magazines
    • Diggings
    • Wisconsin Interest
  • Events
  • Media
    • Podcast
    • Fact Sheets
    • Viewpoints
    • Press Releases
    • Badger in the News
    • Video
    • Audio
    • Testimony
  • About
    • Our Mission
    • Board of Directors
    • Team
    • Visiting Fellows
    • America’s Future
    • Careers
Facebook Twitter YouTube LinkedIn
DONATE
Badger InstituteBadger Institute
Home » Media » News » Wisconsin’s PPP Loan Recipients Face Hundreds of Millions in Surprise Taxes
COVID-19

Wisconsin’s PPP Loan Recipients Face Hundreds of Millions in Surprise Taxes

By Katherine  LougheadJanuary 29, 2021
Share
Facebook Twitter LinkedIn Pinterest

Nearly 90,000 Wisconsin small businesses that have taken out loans under the federal Paycheck Protection Program (PPP) will face hundreds of millions of dollars in state income tax liability on those loans this spring, despite the loans being tax-free at the federal level. Unless the legislature acts, businesses that have received PPP loans and related federal assistance will face $457 million in state taxes through 2024—with more than half of those taxes coming due this spring—despite Wisconsin being on track to see continued general fund revenue growth even amid the pandemic.

Under current Wisconsin law, first-round PPP loans (those issued in 2020) will not be treated as taxable income, but expenses paid for using those loans will be ineligible for the usual expense deduction. This means that Wisconsin businesses that took out PPP loans will have a higher level of Wisconsin taxable income than if they had not used the federal lifeline. Second-round PPP loans (those issued in 2021) are also on track to be taxed by the state, albeit in the opposite manner: expenses will be deductible, but the loans are set to be treated as taxable income.

This complex and burdensome treatment exists due to the odd way in which Wisconsin’s tax code currently stands in relation to the federal tax code. In general, Wisconsin conforms to the Internal Revenue Code (IRC) as it existed on December 31, 2017, whereby forgiven loans are generally treated as taxable income and normal business expenses (like payroll, rent, and utilities) are, of course, deductible. That is why, absent legislative action, Wisconsin remains poised to treat second-round PPP loans as taxable income but allow associated expenses to be deducted.

While Wisconsin mostly conforms to an outdated version of the IRC, lawmakers have selectively adopted certain recent federal tax changes, including the CARES Act provision specifying that first-round PPP loans will not be treated as taxable income. Despite legislators and Gov. Tony Evers (D) coming to an agreement last April—with the enactment of AB 1038—to exclude forgiven PPP loan amounts from taxable income, a notice issued last week by the Wisconsin Department of Revenue signals the state’s plans to deny the expense deduction. Denying PPP-covered expenses the usual expense deduction would have an effect similar to taxing the forgiven loans as income in the first place, an outcome Wisconsin policymakers have already sought to avoid.

Interestingly, the U.S. Congress ran into the same issues. When they chose, in the CARES Act, to exclude the forgiven loans from income, the Treasury Department concluded that, under its interpretation of existing law, excluding forgiven PPP loans from taxable income would trigger a denial of the deduction for business expenses—a determination which rendered the CARES Act’s tax-free treatment of forgiven PPP loans essentially meaningless. Congress resolved this issue with the enactment of the Consolidated Appropriations Act in December—changing the law to ensure covered expenses are deductible. But Wisconsin, by conforming to outdated federal language, is on track to deny the expense deduction, with the state revenue department leaning on the now-overridden Treasury ruling as an accurate interpretation of the law as it existed previously, in a version to which Wisconsin is still conformed. By specifically conforming just to the initial CARES Act provision on forgiven loans, and not to the current IRC as a whole, or to the broader provisions of the two federal bills, Wisconsin lawmakers’ objective in changing the tax treatment of PPP loan income has been thwarted.

The good news is, it’s not too late for state policymakers to act to accept the technical correction adopted by Congress, as some Wisconsin legislators have proposed. Doing so would save Wisconsin’s PPP recipients—including restaurants, bars, dairy producers, and salons—from having to pay hundreds of millions of dollars in unexpected tax liability this Tax Day. Failing to act would force Wisconsin’s nearly 90,000 PPP loan recipients to scour for cash to pay surprise tax bills on federal assistance that was never intended to be taxed.

Wisconsin policymakers should provide certainty to these employers now and avoid adding to the immense financial and administrative burdens countless business owners and their employees are already facing amid the pandemic. Increasing tax liability now would drive more hurting small businesses to permanent closure, resulting in more job loss—the very outcome the PPP was designed to prevent in the first place.

This was first posted on the Tax Foundation blog.

Katherine Loughead is a senior policy analyst with the Center for State Tax Policy at the Tax Foundation.

News
Share. Facebook Twitter Pinterest LinkedIn Tumblr Telegram Email
Katherine  Loughead

Related Posts

Wisconsin lawmakers in the dark on broadband

March 16, 2023

The underfunded part of Wisconsin public schooling

March 16, 2023

Assembly Speaker calls for tolling to fund Wisconsin infrastructure

March 2, 2023
Categories
Top Posts

Local pols filling old budget holes with massive COVID aid

December 8, 20221,447

This is not four years ago

November 10, 20221,283

A state without convictions

January 12, 2023643

Billions in federal spending in Wisconsin unaudited; results never measured

November 9, 2022484
Archives

Sign Up for Top Picks

Our weekly e-Newsletter with the latest items and updates

Connect with Badger Institute
  • Facebook
  • Twitter
  • YouTube
  • LinkedIn
About Us
About Us

The Badger Institute is a nonpartisan, not-for-profit institute established in 1987 working to engage and energize Wisconsinites and others in discussions and timely action on key public policy issues critical to the state’s future, growth and prosperity.

Facebook Twitter Instagram YouTube LinkedIn

Sign Up for Top Picks

Our weekly e-Newsletter with the latest items and updates

What’s New

Wisconsin lawmakers in the dark on broadband

March 16, 2023

The underfunded part of Wisconsin public schooling

March 16, 2023

If we don’t pay for roads, we don’t get mobility

March 9, 2023

Assembly Speaker calls for tolling to fund Wisconsin infrastructure

March 2, 2023
© 2023 Badger Institute | Privacy Policy | Disclaimer | Sitemap

Type above and press Enter to search. Press Esc to cancel.

This site uses functional cookies and external scripts to improve your experience.

Privacy settings

Privacy Settings

This site uses functional cookies and external scripts to improve your experience. Which cookies and scripts are used and how they impact your visit is specified on the left. You may change your settings at any time. Your choices will not impact your visit.

NOTE: These settings will only apply to the browser and device you are currently using.

CRM Software

Customer Relationship Management Software

Google Analytics

Google Analytics is a web analytics service offered by Google that tracks and reports website traffic. Google uses the data collected to track and monitor the use of our Service. This data is shared with other Google services. Google may use the collected data to contextualize and personalize the ads of its own advertising network.

You can opt-out of having made your activity on the Service available to Google Analytics by installing the Google Analytics opt-out browser add-on. The add-on prevents the Google Analytics JavaScript (ga.js, analytics.js, and dc.js) from sharing information with Google Analytics about visits activity.

For more information on the privacy practices of Google, please visit the Google Privacy & Terms web page: https://policies.google.com/privacy?hl=en

Powered by Cookie Information