Small business owners with certain forgiven federal loans during the COVID-19 pandemic can now exclude those funds from their gross taxable income in Massachusetts.
Gov. Charlie Baker signed into law Thursday afternoon legislation that makes enables “pass-through entities” with forgiven Paycheck Protection Program loans to get the same tax benefits that corporations do.
The congressional stimulus package in December allowed businesses with forgiven PPP loans to exclude the funds from gross taxable income while still claiming the deductions for expenses they paid using the PPP money, which tax experts and critics have described as a “double benefit.”
In Massachusetts, corporations got the same benefits because the state’s corporate tax code conforms to the federal corporate tax code automatically. But the state has a fixed individual tax code, meaning lawmakers had to pass legislation to ensure small businesses could get the same relief.
Residents who received unemployment benefits won’t be taxed on the first $10,200 if they live below 200% of the federal poverty level.
The new law also freezes the unemployment insurance rate for the calendar years 2021 and 2022, slowing the annual employer UI contribution rate. The rate was expected to increase hundreds of dollars per employee.
“This legislation takes a thoughtful and comprehensive approach in delivering critical relief to facilitate economic recovery for the people of Massachusetts,” Baker said in a letter to lawmakers.
While employers get a reprieve from UI rate hikes, the new law authorizes the state to issue special obligation bonds to repay federal advances and get the trust fund out of the red.
The bill also creates a $75 million COVID-19 emergency paid sick time program similar to the federal COVID leave benefits, requiring employers to give workers a week’s paid leave if they are infected with, isolated or quarantined due to COVID-19.
The paid leave also extends to those getting vaccinated or caring for family members who fit those same criteria.
“The mandate aptly addresses needs — immunization, isolation, and quarantine — that were not contemplated when the state’s Paid Family and Medical Leave program was designed,” Baker said.