How does a PPP loan affect my taxes? (Tax year 2021)

SOLVED•by TurboTax•596•Updated January 13, 2023

Note: This article's content applies to 2021 tax returns only.

The Paycheck Protection Program (PPP) was part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which consisted of government-backed loans to help small businesses and other eligible applicants continue covering payroll costs and certain operating expenses during the coronavirus (COVID-19) pandemic. These loans were available to:

Small businesses with less than 500 employees
Sole proprietorships
Independent contractors
Eligible self-employed individuals

Under certain criteria, and if you use the funds as directed by the SBA, the loan may be completely or partially forgiven. You can learn about PPP loan forgiveness at this SBA webpage.

Here’s what it means for your taxes:

For small businesses

Any money you receive from the loan forgiveness is not part of your gross income and therefore isn’t taxable. Additionally, the payroll and other expenses that PPP loan forgiveness covers are deductible.

Note: Employers that receive a PPP loan can’t also claim Employee Retention Credits.

For self-employed individuals without employees

Any money you receive from the loan forgiveness is not part of your gross income and therefore isn’t taxable.

Related Information:

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