Texas Treatment of Federal Paycheck Protection Program Debt Forgiveness

Thoughtware Alert Published: Jun 03, 2021

House Bill (HB) 1195, which addresses Texas treatment of federal loans forgiven under the Paycheck Protection Program (PPP), was passed by the Texas Legislature and signed by Gov. Greg Abbott. The bill applies to Texas franchise tax reports due on or after January 1, 2021. 

Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in 2020 to stimulate the economy in response to COVID-19. The PPP was created as part of the CARES Act to provide support to small businesses. Loans made to small businesses by the U.S. Small Business Administration pursuant to the PPP were to be forgiven with subsequent federal legislation allowing businesses to deduct related expenses paid with the forgiven debt. 

Texas law adopts the federal tax code in effect in 2007, which requires businesses to include debt forgiveness in taxable income and, in turn, the Texas margin tax revenue calculation. With the passage of HB 1195, Texas now excludes debt forgiveness provided as part of the PPP. The bill also allows companies to use expenses paid with PPP loan proceeds in the calculation of their Texas cost of goods sold or compensation deduction calculations.

As a reminder, the 2021 Texas Franchise Tax Report is due June 15, 2021, due to the effect of the February winter storm in Texas.

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