Minnesota PPP Adjustment Amount

[dan_e_t]

I am filing my state return for MN.  I'm a sole proprietor and received a small Paycheck Protection Program sum which was fully forgiven last year.  MN has not conformed to the federal standard that PPP isn't considered business income.  So in MN PPP funds are still considered income and thus taxable.  This is the only question on the state return regarding the PPP funds, and I'm not quite sure what they're asking here.  Can someone please explain in simpler terms what this means?  I especially don't understand the "subtract the expenses that would have been deductible if you had not claimed the loan forgiveness treatment."  WHAT?

[ThomasM125]

I think what happened here is originally, when you excluded the PPP grants from taxation, you weren't allowed to deduct the expenses the funds were spent on. For instance, if you received $8,000 in PPP money and used it for payroll in the amount of $8,000, you didn't have to include the $8,000 in tax income, but you couldn't deduct the $8,000 in payroll expense either. So, you would have expenses that weren't deductible if you had the loan forgiven.

That regulation was changed a couple of months ago to allow you to deduct the expenses and exclude the grant from taxable income. So, you probably don't have any expenses that would have been deductible if you had not claimed the loan forgiveness treatment. The wording was once applicable, but is no longer.

[dan_e_t]

This still is not clear to me.  So for your example, I received $8,000.  I kept $6,000 of that in "payroll" (as a sole proprietor I was allowed to pay myself 8/52 of my 2019 business net income as payroll), and the other $2000 I used to pay rent, phone, utilities, etc.  So then what the state is asking is how much of the funds weren't used for expenses, which in this case is $6000, so I would enter $6000?  Or are you saying that current regulations in MN don't allow me to deduct those expenses as well, so I need to pay tax on all $8,000?

[ThomasM125 · Accepted solution]

You do need to pay tax on the full amount of the grant, which is $8,000 in your example. So you would ignore the part about deducting expenses and enter $8,000 for the adjustment.

Here is an article that may explain it better:

https://blog-abm-news.extension.umn.edu/2020/12/minnesota-requires-adjustments-to-state.html

[dan_e_t]

Got it. I think I found that article but didn't read it with enough detail. Thanks!