Loan income received under the Paycheck Protection Program (PPP) is not taxable income, regardless of whether the loan was forgiven or not. Forgiven PPP loans are not considered write-offs of debt income and, therefore, you should not report this loan income on your tax return. Taxpayers can treat such income as received or accrued when (expenses eligible for forgiveness are paid or incurred), (a PPP loan forgiveness application is filed), or (PPP loan forgiveness is granted). Similarly, taxpayers who report tax-exempt income from PPP loan forgiveness before the year in which the PPP loan forgiveness is actually granted should consider filing an amended return (or, if applicable, an AAR) for the year in which the income was reported tax-exempt if the amount of tax-exempt income reported is greater than the forgiveness finally granted.
The program forgives the full amount of the principal of the loan up to the full amount used to pay eligible expenses, and excludes the forgiven amount from the taxpayer's gross income. Taxpayers with tax-exempt income from forgiving a Paycheck Protection Program (PPP) loan must attach a return to their tax return for each year in which they include such tax-exempt income in gross income.
