States Should Not Treat PPP Funds as Taxable Income

March means tax season for America's 30 million small business owners. Tax time this year is especially burdensome for employers due to the unprecedented pandemic-induced operations disruptions in 2020.

Making matters worse, roughly 20 states are blindsiding small businesses with an unexpected expense by taxing funds received from the federal Paycheck Protection Program (PPP), which last year provided over five million small businesses with $525 billion in forgivable loans.

State legislators can ease employers' tax burdens and accelerate their states' small business-led economic recoveries by clarifying that PPP funds are fully tax-free. President Biden, who recently rolled out a slate of PPP modifications, can use his bully pulpit to encourage states to follow Washington's lead and side with small businesses on this issue.