State & Local Tax Impacts of COVID-19 for Hawaii – 2021

Thoughtware Alert Published: Aug 20, 2021 | Updated: Dec 16, 2021

Information current as of November 30, 2021.

COVID-19 has changed life across the globe. Many taxing jurisdictions are taking mitigating actions to create social distance and aid taxpayers. The following is a running list of actions by jurisdiction, which generally result in additional time to file and/or pay. Further, many jurisdictions have closed their offices to in-person use by taxpayers and suspended their audit and administrative functions. This alert doesn’t cover similar waivers from local-level taxing authorities. These developments continue to quickly evolve; check with your BKD Trusted Advisor or visit our COVID-19 Resource Center for current information as needed.

Information Specific to Hawaii

  • Hawaii has adopted rules outlined in IRS Rev. Rul. 2020-27 regarding pandemic relief loans for state income tax purposes. As such, businesses that expect to have their federal Paycheck Protection Program (PPP) loans forgiven can’t claim state deductions for expenses paid with those funds. If a state return has already been filed claiming deductions, businesses must file amended returns and remove them. Businesses may claim the deductions for expenses paid if they don’t expect forgiveness of a PPP loan, but if the loan is later forgiven, they will need to amend returns to remove the deductions.
    • REVOKED – Hawaii DOR, Tax Information Release 21-03, May 10, 2021.
  • Hawaii issued guidance regarding the claiming of deductions for expenses paid with PPP funds. For Hawaii purposes, PPP loan forgiveness amounts are excluded from gross income. If the expenses paid by the taxpayer entitle it to the PPP loan forgiveness and the taxpayer has a reasonable expectation of forgiveness, the deductions are not allowed on the Hawaii return. Reasonable expectation is based on the taxpayer’s satisfaction of the forgiveness requirements of the PPP loan program. If the expenses paid by the taxpayer entitle it to the PPP loan forgiveness and the taxpayer has applied for loan forgiveness, then the taxpayer has a reasonable expectation of forgiveness, and the deductions are not allowed. Payroll costs, interest on a covered mortgage obligation, a covered rent obligation, or a covered utility payment are examples of expenses that would qualify the loan for forgiveness. The deductions are not allowed, even if loan forgiveness is not expected until a future taxable year. If a return has already been filed, the return must be amended to remove any disallowed deductions. If the loan is ultimately not forgiven, assuming the expenses paid were otherwise deductible, deductions may be claimed for the year in which the expenses were paid; in this case, a return may be amended to include the deductions for ordinary and necessary expenses paid with the PPP loan. Taxpayers can request a waiver of penalties and interest incurred from the PPP by sending a written request for waiver to the Taxpayer Advocate. All requests must clearly state the reasons for the waiver and include payment for the total tax due. Waiver requests are due by October 20, 2021, for returns on extension and December 31, 2021, for amended returns. 
    • Hawaii DOR, Tax Information Release 21-05, July 2, 2021.
    • This guidance revokes Technical Information Release No. 2021-03.
  • Hawaii updated guidance on Schedule C and PPP loans for individual income tax purposes. If a sole proprietor’s PPP loan was based on net income, the PPP loan forgiven is excluded from income subject to the income tax, and the proprietor is allowed to deduct all other expenses to determine their wages. If the PPP loan application was submitted specifically to cover the amount of employees’ wages and any qualified expenses, then the PPP loan forgiven isn’t reported as taxable income but the proprietor isn’t allowed to deduct PPP amounts received to cover employee wages and qualified expenses. 
    • Hawaii DOR, Updates for Taxpayers; October 1, 2021.

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