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Wisconsin issues guidance on changes made by Consolidated Appropriations Act

Feb 04, 2021

On January 15, 2021, the Wisconsin Department of Revenue issued guidance on the current Wisconsin treatment of certain federal law changes enacted by the Consolidated Appropriations Act, 2021 (Public Law 116-260). A summary of that guidance follows:

Earned income credit

Federal law 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).

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.

The governor’s office has indicated its support for legislative action to adopt this provision of federal law.

Emergency grants of Economic Injury Disaster Loans (EIDL) and targeted EIDL advances

Federal law provides that emergency EIDL grants and targeted EIDL advances are excluded from gross income for federal purposes. For Wisconsin income/franchise tax purposes, taxpayers must include the grants or advances in Wisconsin gross income. However, taxpayers may deduct expenses paid with EIDL grants or advances that would otherwise be deductible.

Subsidy for certain loan payments

Federal law provides that a subsidy for certain loan payments is excluded from gross income for federal purposes. For Wisconsin income/franchise tax purposes, taxpayers must include the subsidy in Wisconsin gross income. However, taxpayers may deduct expenses paid with the subsidy that would otherwise be deductible.

Grants for shuttered venue operations

Federal law provides that grants for shuttered venue operators are excluded from gross income for federal purposes. For Wisconsin income/franchise tax purposes, taxpayers must include the grants in Wisconsin gross income. However, taxpayers may deduct expenses paid with grants that would otherwise be deductible.

Paycheck Protection Program (PPP) loans

The chart below outlines the current Wisconsin Department of Revenue position as it relates to the treatment of PPP loan proceeds and the expenses funded by these loans.

PPP loans issued under the CARES Act Additional PPP loans issued under the Consolidated Appropriations Act
Loan forgiveness excluded from income under Wisconsin Act 185 Loan forgiveness included in income unless Wisconsin adopts conforming legislation
PPP “related” expenses are nondeductible for Wisconsin taxpayers unless Wisconsin adopts conforming legislation. Wisconsin is following the IRS Revenue Ruling 2020-27 and Notice 2020-32, which Wisconsin has determined to interpret the law prior to changes made by the Consolidated Appropriations Act. PPP “related” are expenses deductible for Wisconsin. Since PPP loan forgiveness is taxable, the income is not tax exempt and the related expenses are not governed by the disallowance rules under 265(a)(1) (as outlined in IRS Notice 2020-32).

PPP “related” expenses are nondeductible for Wisconsin taxpayers unless Wisconsin adopts conforming legislation. Wisconsin is following the IRS Revenue Ruling 2020-27 and Notice 2020-32, which Wisconsin has determined to interpret the law prior to changes made by the Consolidated Appropriations Act.

PPP “related” are expenses deductible for Wisconsin. Since PPP loan forgiveness is taxable, the income is not tax exempt and the related expenses are not governed by the disallowance rules under 265(a)(1) (as outlined in IRS Notice 2020-32).

Currently, it appears that there is little legislative support for the conforming legislation required to alter the published Wisconsin income/franchise tax treatment of PPP loan proceeds and the expenses funded with those proceeds.

How Wipfli can help

If you have questions about any of the guidance above, contact us for assistance. You can also visit our COVID-19 resource center for more information on how businesses can navigate the impacts of the COVID-19 pandemic.

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Author(s)

Linda J. Feirn, CPA
Partner
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