Recent Info and Tax Law Changes

The following topics discuss recent information and changes in tax laws, including federal laws that affect Utah taxes.

• How does claiming the Federal Employee Retention Credit (ERC) impact Utah taxable income?
• Does Utah Code Subsection 59-7-106(1)(f) authorize a deduction against Utah taxable income for a corporation’s payroll expenses associated with the Federal Employee Retention Credit (ERC)?
• SALT Report and Tax FAQ – 2022 House Bill 444 – Federal State and Local Tax Deduction Workaround
• Changes Regarding Paycheck Protection Program (PPP) Loans
• Tax Status of Forgiven PPP Loans for Non-Profit Entities
• Tax Status of Forgiven Federal Loans Unrelated to PPP Used to Pay for Deductible Expenses
• Tax Status of Forgiven Payments, Interest, & Fees from PPP Loans Used to Pay for Deductible Expenses
• Tax Status of Loans Paid For with Government Grants
• Tax Status of Loans Used to Pay for Deductible Expenses
• Tax Status of Forgiven PPP Loans Used to Pay for Deductible Expenses
• Impact of the Federal Partnership Audit Regime on Utah income tax
• Tax Status of the Shuttered Venue Operator Grant (SVOG) program
• Tax Status of the Restaurant Revitalization Grant program
• Tax Credit for Taxes Paid to Another State Through a Pass-through Entity

How does claiming the Federal Employee Retention Credit (ERC) impact Utah taxable income?

The ERC is credit against federal payroll taxes of up to $26,000 per eligible employee. If an employer claims the ERC, the employer must reduce their income tax payroll deduction by the amount of the credit for the taxable year. This prevents the employer from receiving a double tax benefit by deducting an expense that the employer was compensated for through the ERC credit. Utah law requires that Utah taxable income is calculated based on federal adjusted gross income for individuals and federal taxable income for corporations. This means that to the extent that the ERC associated payroll expenses are not deductible on the federal return, they are not deductible on the state return either.   

Does Utah Code Subsection 59-7-106(1)(f) authorize a deduction against Utah taxable income for a corporation’s payroll expenses associated with the Federal Employee Retention Credit (ERC)?

No. Subsection 59-7-106(1)(f) applies to income tax and the ERC is not an federal income tax credit and is not claimed on a federal income tax return. The ERC is a credit against the payroll withholding tax that is reported on Form 941 on behalf of employees

Changes Regarding Paycheck Protection Program (PPP) Loans

Recent legislation and decisions on the federal and state levels have required changes to some of our annual filing instructions. Please see TC-40 – Utah Individual Income Tax Return Instructions for information. The instructions found below and elsewhere within this website also reflect the most current changes. Also see the instructions in these forms for PPP information on other taxes:

• TC-20 – Utah Corporation Franchise and Income Tax Return
• TC-20S – Utah S Corporation Return
• TC-41 – Utah Fiduciary Income Tax Return
• TC-65 – Utah Partnership/LLP/LLC Return of Income

What is the Utah tax status of forgiven PPP loan amounts that were used by non-profit entities to pay for expenses that are deductible against unrelated business income?

Non-profit organizations are taxed in Utah on Utah unrelated business income. Non-profit entities will be treated consistently with for-profit entities to the extent the non-profit entity has unrelated business income.

PPP loan amounts forgiven by the federal government are taxable in Utah, if:

• the loan was forgiven during the tax year
• the value of the loan is not subject to federal income tax, and
• the loan is used for expenses that are deductible for federal income tax purposes

If forgiven PPP loan amounts were used to pay for expenses that are deductible against unrelated business income, these forgiven amounts should be included as unadjusted income, and any appropriate subsequent deductions would flow from the federal form 990-T to the Utah form TC-20MC.

What is the Utah tax status of forgiven federal loans that are unrelated to the Paycheck Protection Program if the forgiven amounts are used to pay expenses that are deductible for federal tax purposes?

Utah requires a PPP Loan or a similar paycheck protection loan that is authorized by the federal government in response to COVID-19 to be added to unadjusted income and therefore taxable in Utah, if:

• the loan was forgiven during the tax year
• the value of the loan is not subject to federal income tax, and
• the loan is used for expenses that are deductible for federal income tax purposes

Federal loans unrelated to the paycheck protection program (PPP) are not subject to the addback requirement. If a forgiven loan is not related to paycheck protection and/or COVID-19, the Utah tax treatment will follow the federal treatment for the specific forgiven loan. Generally, forgiven federal loans are considered part of federal unadjusted income and are taxable in Utah.

What is the Utah tax status for forgiven payments, interest, and loan fees associated with a PPP loan or similar loan if the taxpayer uses the forgiven amounts to pay for federally deductible expenses?

Any forgiven amounts (including payments, interest, or loan fees) related to a PPP loan or similar loan are taxable in Utah, if:

• the amount is forgiven during the tax year;
• the forgiven amount is not subject to federal income tax; and
• the forgiven amount is used for expenses that are deductible for federal income tax purposes.

The total forgiven amount relating to any PPP loan or similar loan that is not subject to federal income tax and for which expenses are deductible for federal income tax purposes must be reported as an addition to income on the taxpayer’s Utah return. A taxpayer’s total adjusted income, including the forgiven amount of any PPP loan, is subject to apportionment in Utah based on the taxpayer’s business activities in the state.

What is the Utah tax status of a PPP loan or similar loan that is not forgiven by the federal government but where the loan amount is paid by a grant from the state or a local government?

For a taxable year beginning on or after January 1, 2020, but beginning on or before December 31, 2020, any federally funded grant funds or forgiven loans that the taxpayer receives from the state of Utah, a county within the state, or a municipality within the state in response to COVID-19 shall be subtracted from unadjusted income if the amount of the grant or forgiven loan is included in unadjusted income.

Therefore, a PPP loan that is not forgiven by the federal government but where the loan amount is paid by certain eligible grants from the state of Utah or a local government would not be taxable in Utah.

Please seek professional tax advice regarding the federal taxability of such state and local grants.

What is the Utah tax status of a PPP loan or similar loan that is not forgiven by the federal government if the taxpayer uses it to pay for federally deductible expenses?

Utah requires PPP loans or a similar paycheck protection loan that is authorized by the federal government in response to COVID-19 to be added to unadjusted income and taxable in Utah if:

• the loan was forgiven during the tax year
• the value of the loan is not subject to federal income tax, and
• the loan is used for expenses that are deductible for federal income tax purposes

Therefore, if the loan itself was not forgiven, it would not be included in unadjusted income and would not be taxable in Utah. Federally deductible expenses would flow through to the Utah tax return normally.

What is the Utah tax status of a forgiven PPP loan if the forgiven amount was used to pay deductible expenses in other states?

The total forgiven amount of a PPP loan that is not subject to federal income tax and for which expenses are deductible for federal income tax purposes must be reported as an addition to income on the taxpayer’s Utah return. A taxpayer’s total adjusted income, including the forgiven amount of any PPP loan, is subject to apportionment in Utah based on the taxpayer’s business activities in the state.

How does the new federal partnership audit regime impact my Utah income tax?

Partnerships may be audited by the IRS under the new federal partnership audit regime enacted within Bipartisan Budget Act of 2015. If a partnership has Utah business activity and the partnership’s federal tax attributes are changed as a result of an IRS audit, the partnership must report the change to the Utah Tax Commission within 90 days. (See Utah Code Sections 59-10-536 and 59-7-519) The partnership must report this change by filing an amended Utah partnership return. This amended return would require the payment of withholding tax for the increased income allocated to all nonresidents, and non-individual partners. Utah resident partners must file an amended Utah return for the years that were changed by the IRS and pay any additional tax to avoid potential penalties and interest.

Tax Status of the Shuttered Venue Operator Grant (SVOG) program

The Shuttered Venue Operator Grant (SVOG) program of the SBA provides grants to support shuttered live venues, theaters, museums, and zoos that have experienced significant revenue losses due to the COVID-19 pandemic. Any grant made under the program is excluded from the gross income of the recipient. The recipient also may fully deduct ordinary and necessary business expenses that are paid with the grant. Taxpayers do not need to add the grant amount back to their Utah adjusted income.

Tax Status of the Restaurant Revitalization Grant program

The Restaurant Revitalization Grant program of the SBA provides grants to support businesses primarily engaged in serving food or drink that have experienced significant revenue losses due to the COVID-19 pandemic. Any grant made under the program is excluded from the gross income of the recipient. The recipient also may fully deduct ordinary and necessary business expenses that are paid with the grant. Taxpayers do not need to add the grant amount back to their Utah adjusted income.

Can a Utah resident individual claim a nonrefundable credit for taxes paid to another state if those taxes are paid through a pass through entity on behalf of the individual?

Yes, a Utah resident individual may claim a credit for taxes paid to another state by a pass-through entity if:

1. the taxes are imposed on income derived from sources within that other state;
2. the pass-through entity paid the tax to the other state on behalf of the resident individual for income that was calculated on the distributable share of the resident individual; and
3. any amount of income or taxes paid to another state on the income that is not included in the resident individual’s federal adjusted gross income, is reported on the resident individual’s Utah income tax return as an addition to income on form TC-40A, Part 1, using Code 60.