If you received COVID relief funds such as a PPP loan, an EIDL grant, Restaurant Relief Fund payments, or a Shuttered Venue Operation Grant, you are likely wondering if the payments are taxable in California. In this post, we detail everything you need to know about COVID relief funds and California taxes—including loan forgiveness requirements.
Paycheck Protection Program (PPP) Loan Forgiveness
If you received Paycheck Protection funds and seek loan forgiveness, there are a few things you need to know:
- You’ll often hear the terms “First Draw PPP Loan” and “Second Draw PPP Loan.” These terms are identical.
- Per the SBA, borrowers qualify for full loan forgiveness if, during the 8- to 24-week covered period following loan reimbursement, the following are met:
- Employee and compensation levels are maintained,
- The loan proceeds are spent on payroll costs and other eligible expenses, and
- At least 60% of the proceeds are spent on payroll costs.
Is PPP taxable in California?
Forgiven PPP loans are excluded from Gross Income in California.
The SBA offers more information on PPP Loan forgiveness.
Economic Injury Disaster Loan (EIDL) Grants: Do They Need to Be Repaid?
No, EIDL grants do not need to be repaid.
Economic Injury Disaster Loan (EIDL) advance grants were awarded to applicants registering for an EIDL loan who met the following requirements:
- Were in a low-income community
- Demonstrated over 30% revenue reduction during an eight-week period beginning on March 2, 2020 or later
- Had 300 or fewer employees
EIDL applicants were not required to accept the loan or be approved for the loan to receive an advance grant.
The first EIDL advance grant was up to $10,000 and does not need to be repaid.
A second EIDL advance grant, called the Supplemental Targeted Advance, provides an additional payment of $5,000 that also does not have to be repaid.
To be considered for the Supplemental Targeted Advance, you must complete an application and meet the following requirements:
- Be located in a low-income community
- Can prove over 50% economic loss during an eight-week period beginning on March 2, 2020 or later, compared to the same period of the previous year.
- Have 10 or fewer employees.
Is EIDL taxable in California?
Under AB 80, EIDL is not counted as taxable income.
The SBA offers more information on EIDL grants.
Restaurant Revitalization Fund (RRF) Details and Requirements
The Restaurant Revitalization Fund (RRF) provided emergency assistance for eligible restaurants, bars, and other qualifying businesses impacted by COVID-19.
Once received, funds may be used for the following expenses:
- Business payroll costs (including sick leave)
- Payments on any business mortgage obligation
- Business rent payments (this does not include rent prepayment)
- Business debt service, both principal and interest (this does not include any principal or interest prepayment)
- Business utility payments
- Business maintenance expenses
- Outdoor seating construction
- Business supplies (including protective equipment and cleaning materials)
- Business food and beverage expenses (including raw materials)
- Covered supplier costs
- Business operating expenses
All recipients have until March 11, 2023 to use RRF funds received.
Recipients were required to report how much of their award was used against each expense category as of December 31, 2021.
Recipients who did not fully expend award funds before December 31, 2021 must complete annual reporting submissions until they fully expend the award funding, or the period of performance expires. The SBA offers more RRF information.
Is the Restaurant Relief Fund (RRF) taxable in California?
Per SB 113, RRF funds received as part of the American Rescue Plan Act of 2021 will not be taxed.
Shuttered Venue Operators Grant (SVOG) Details & Requirements
The Shuttered Venue Operators Grant offers emergency funds for performing arts venues.
Eligible entities include:
- Live venue operators or promoters
- Theatrical producers
- Live performing arts organization operators
- Museum operators
- Motion picture theater operators (including owners)
- Talent representatives
Grants were awarded equal to 45% of gross earned revenue, with the maximum amount available as a single $10 million grant award.
Funds may be used for specific expenses, which include:
- Payroll costs
- Rent payments
- Utility payments
- Scheduled mortgage payments (not including prepayment of principal)
- Scheduled debt payments (not including prepayment of principal on any indebtedness incurred in the ordinary course of business before February 15, 2020)
- Worker protection expenditures
- Payments to independent contractors (not to exceed $100,000 in annual compensation for an individual employee of an independent contractor)
- Other ordinary and necessary business expenses, including maintenance costs
- Administrative costs (including fees and licensing)
- State and local taxes and fees
- Operating leases in effect as of February 15, 2020
- Insurance payments
- Advertising, production, transportation, and capital expenditures related to producing a theatrical or live performing arts production. (May not be primary use of funds.)
Grantees are required to maintain documentation demonstrating compliance with eligibility and other requirements of the Shuttered Venue Operator Grants program.
They must retain employment records for four years following their receipt of a grant and retain all other records for three years.
Is SVOG taxable in California?
SVOG funds not repaid are taxable. Expenses are deductible.
We hope this helps you navigate COVID relief forgiveness and California taxes as they pertain to this year’s tax returns. Contact us today if you have questions regarding COVID relief funds and how they relate to your tax return.