Important Information About Effect of New Federal Law on 2020 Wisconsin Tax Returns
The federal Consolidated Appropriations Act, 2021 (Public Law 116-260) was enacted on December 27, 2020. The following are significant provisions of the bill that have not been adopted into Wisconsin law and will affect the filing of 2020 Wisconsin income/franchise tax returns.
Paycheck Protection Program Expenses
The Act provides that expenses paid with forgivable Paycheck Protection Program (PPP) loan proceeds are deductible for federal tax purposes (see secs. 276(a) and 278(a) of Division N of Public Law 116-260). However, Wisconsin law follows federal law prior to amendments made by the Act. Therefore, expenses incurred that are paid with the forgivable PPP funds are not deductible for Wisconsin income/franchise tax purposes. Wisconsin follows the interpretation of federal law prior to modification by the Act, which is described in Revenue Ruling 2020-27:
“A taxpayer that received a covered loan guaranteed under the PPP and paid or incurred certain otherwise deductible expenses listed in section 1106(b) of the CARES Act may not deduct those expenses in the taxable year in which the expenses were paid or incurred if, at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness of the covered loan on the basis of the expenses it paid or accrued during the covered period, even if the taxpayer has not submitted an application for forgiveness of the covered loan by the end of such taxable year.”
Note: Although Revenue Ruling 2020-27 was made obsolete as a result of the Act, it still interprets federal law prior to the Act.
Subsequent Paycheck Protection Program Loans
The Act provides that subsequent PPP loan proceeds that are forgiven are excluded from gross income for federal purposes (see sec. 276(b) of Division N of Public Law 116-260). Taxpayers must include in Wisconsin gross income any subsequent PPP loan proceeds forgiven.
Emergency Grants of Economic Injury Disaster Loans (EIDL) and Targeted EIDL Advances
The Act provides that emergency EIDL grants and targeted EIDL advances are excluded from gross income for federal purposes (see sec. 278(b) of Division N of Public Law 116-260). Taxpayers must include the grants or advances in Wisconsin gross income.
Subsidy for Certain Loan Payments
The Act provides that subsidy for certain loan payments are excluded from gross income for federal purposes (see sec. 278(c) of Division N of Public Law 116-260). Taxpayers must include the subsidy in Wisconsin gross income.
Grants for Shuttered Venue Operations
The Act provides that grants for shuttered venue operations are excluded from gross income for federal purposes (see sec. 278(d) of Division N of Public Law 116-260). Taxpayers must include the grants in Wisconsin gross income.
Earned Income Tax Credit
The Act provides that if a taxpayer’s earned income for 2020 is less than the earned income for 2019, the taxpayer may elect to use their 2019 earned income to compute the 2020 federal earned income tax credit (see sec. 211 of Division EE of Public Law 116-260). Taxpayers must use their 2020 income to compute the Wisconsin earned income tax credit. Therefore, if a taxpayer elects to use their 2019 earned income to compute their 2020 federal earned income tax credit, they must recompute the federal earned income tax credit using their 2020 earned income amount for Wisconsin purposes.
Applicable Laws and Rules
This document provides statements or interpretations of the following laws and regulations enacted as of January 15, 2021: Chapter 71, Wis. Stats.
Laws enacted and in effect after January 15, 2021, new administrative rules, and court decisions may change the interpretations in this document. Guidance issued prior to January 15, 2021, that is contrary to the information in this document is superseded by this document, pursuant to sec. 73.16(2)(a), Wis. Stats.
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Guidance Document Number: 100241