Youngkin signs bill to comply with tax code

Pandemic-related loans will not be treated as state taxable income

Posted

February 24, 2022




by

Robyn Sidersky


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This year’s tax season could be a little less complicated for businesses that got Paycheck Protection Program loans and Rebuild Virginia grants during the pandemic.

A bill Governor Glenn Youngkin signed into law on Wednesday will ensure that aid given through these programs will not be treated as taxable income.

Since Virginia state and federal tax guidelines do not align and there are pandemic-specific financial issues to consider when filing returns, business taxes may be more complicated this year, which raises new questions. and challenges.

Virginia is a static (or fixed-date) compliance state for tax purposes, meaning it is one of approximately 20 states that freeze state tax rule compliance with the federal tax code at from a given date. Legislation that updated Virginia’s tax law to comply with the latest federal tax code was signed into law by Youngkin on Wednesday.

“The COVID-19 pandemic has been one of the most difficult times for Virginians since the Great Depression,” Youngkin said in a statement. “The federal government and the General Assembly have come together to deliver relief programs designed to keep businesses open and workers employed. With the worst aspects of the COVID-19 pandemic in the rearview mirror, many businesses are still struggling with the effects of unnecessary and forced economic shutdowns. This bill ensures that programs designed to help businesses do not turn into tax liabilities that impede Virginia’s economic recovery.

Emily Walker, vice president of advocacy for the Virginia Society of Certified Public Accountants, said the legislation is notable because Virginia hasn’t fully complied for 2020. “The way they did for 2021 makes it easier for things on the accounting side,” Walker said. “This creates a really significant tax advantage for any business that has benefited from these sources of funding.”

The compliance change takes effect immediately.

Normally, if a business takes out a loan, it can deduct from its taxable income any business expenses paid with that loan. However, if the loan is canceled or converted into a grant, that amount becomes part of the company’s taxable income, Walker explained. The canceled PPP loans were unique because the federal government does not consider cancellation taxable income, provided the funds are used properly.

VSCPA advocated for state and federal tax compliance as much as possible to simplify filing.

“We supported this bill and also advocated for [the General Assembly] to pass it as quickly as possible,” Walker said. Tax season started on January 24.

Youngkin’s signing of the bill came about three weeks earlier than last year when the then governor. Ralph Northam signed the tax compliance bill on the same day as the corporate tax filing deadline.

“Anyone who had a corporate tax return to file had to extend or choose to file with the rules not finalized, which means it’s a gamble,” said George Forsythe, managing partner of WellsColeman and president-elect of VSCPA.

He has hundreds of returns waiting to be completed and is able to process them now that the governor has signed the compliance legislation.

“Selfishly, we want compliance because we can’t finish our job until the rules are known,” Forsythe said.

The bill will save Virginia individuals and businesses $201 million in taxes, according to Youngkin’s office.


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