A taxpayer who received a Paycheck Protection Program (PPP) loan that was subsequently forgiven in 2021 has received tax-exempt income. While the taxpayer does not need to report the forgiven loan as income on their 2021 individual income tax return, they do need to report certain information about the loan on their 2021 return, and the Form 1040 instructions outline how to report information related to the PPP loan on their income tax return.
For timing purposes, Rev. Proc. 2021-48 section 3.01 specifies three options for when taxpayers can treat the tax-exempt income as either received or accrued:
(1) When the expenses eligible for forgiveness were paid or incurred;
(2) When an application for PPP loan forgiveness was filed; or,
(3) When PPP loan forgiveness was granted.
A taxpayer who has tax-exempt income resulting from the forgiveness of a PPP loan must attach a statement to their return titled "RP2021-48" including the following information about each loan received:
- The taxpayer name, address, and SSN/ITIN.
- The amount of tax-exempt income from the forgiveness of the PPP loan.
- The taxable year to which the taxpayer is applying the provisions of Rev. Proc. 2021-48, whether 2020 or 2021.
- Which of the three sections is being applied, 3.01(1), (2), or (3), as explained above.
- Whether or not forgiveness of the PPP loan has been granted as of the date their tax return was filed.
Attaching the note to the tax return
TaxSlayer Pro Desktop
To include this note in the TaxSlayer Pro desktop program, from the Main Menu of the tax return (Form 1040) select:
- Miscellaneous Forms
- Notes / Statements
- Regulatory Explanations - Select New and enter the info as outlined above.
TaxSlayer ProWeb
To include this note in TaxSlayer ProWeb, from the Federal Section of the tax return (Form 1040) select:
- Miscellaneous Forms
- Regulatory Explanations - Title the note RP2021-48, then in the Note section enter the info as outlined above.
Additional Information: