The federal Consolidated Appropriations Act, 2021 (Public Law 116-260) was enacted on December 27, 2020. The following are significant provisions of the Act that affect the filing of 2020 Wisconsin income/franchise tax returns. As of the date of this publication, there are no pending bills before Wisconsin’s legislature that would change the tax treatment described below.

Note: Instructions to Wisconsin 2020 tax forms have been updated to explain how to report the differences described below.

Earned Income Tax Credit

The Act provides that if a taxpayer’s earned income for 2020 is less than the earned income for 2019, the taxpayer may elect to use their 2019 earned income to compute the 2020 federal earned income tax credit (see sec. 211 of Division EE of Public Law 116-260). Taxpayers must use their 2020 income to compute the Wisconsin earned income tax credit. Therefore, if a taxpayer elects to use their 2019 earned income to compute their 2020 federal earned income tax credit, they must recompute the federal earned income tax credit using their 2020 earned income amount for Wisconsin purposes.

Original Paycheck Protection Program Loans

Federal and Wisconsin law provide an exclusion from income for forgiveness of debt on the original Paycheck Protection Program (PPP) loans. The Act provides that expenses paid with original PPP loan proceeds are deductible for federal tax purposes (see secs. 276(a) and 278(a) of Division N of Public Law 116-260). Wisconsin law follows federal law prior to amendments made by the Act. Therefore, expenses incurred that are paid with the forgivable PPP funds (original) are not deductible for Wisconsin income/franchise tax purposes and must be added back to Wisconsin income in the year incurred or paid.

Wisconsin follows federal law prior to modification by the Act, which is described in Revenue Ruling 2020-27:”A taxpayer that received a covered loan guaranteed under the PPP and paid or incurred certain otherwise deductible expenses listed in section 1106(b) of the CARES Act may not deduct those expenses in the taxable year in which the expenses were paid or incurred if, at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness of the covered loan on the basis of the expenses it paid or accrued during the covered period, even if the taxpayer has not submitted an application for forgiveness of the covered loan by the end of such taxable year.”

Note: Although Revenue Ruling 2020-27 was made obsolete as a result of the Act, it still describes federal law prior to the Act.

Subsequent Paycheck Protection Program Loans

The Act provides that subsequent PPP loan proceeds that are forgiven are excluded from gross income for federal purposes (see sec. 276(b) of Division N of Public Law 116-260). For Wisconsin income/franchise tax purposes, taxpayers must include in Wisconsin gross income any subsequent PPP loan proceeds forgiven. However, taxpayers may deduct expenses paid with subsequent PPP loan proceeds that would otherwise be deductible.

Emergency Grants of Economic Injury Disaster Loans (EIDL) and Targeted EIDL Advances

The Act provides that emergency EIDL grants and targeted EIDL advances are excluded from gross income for federal purposes (see sec. 278(b) of Division N of Public Law 116-260). For Wisconsin income/franchise tax purposes, taxpayers must include the grants or advances in Wisconsin gross income. However, taxpayers may deduct expenses paid with EIDL grants or advances that would otherwise be deductible.

Subsidy for Certain Loan Payments

The Act provides that a subsidy for certain loan payments is excluded from gross income for federal purposes (see sec. 278(c) of Division N of Public Law 116-260). For Wisconsin income/franchise tax purposes, taxpayers must include the subsidy in Wisconsin gross income. However, taxpayers may deduct expenses paid with the subsidy that would otherwise be deductible.

Grants for Shuttered Venue Operations

The Act provides that grants for shuttered venue operators are excluded from gross income for federal purposes (see sec. 278(d) of Division N of Public Law 116-260). For Wisconsin income/franchise tax purposes, taxpayers must include the grants in Wisconsin gross income. However, taxpayers may deduct expenses paid with grants that would otherwise be deductible.

Applicable Laws and Rules

This document provides statements or interpretations of the following laws and regulations enacted as of January 22, 2021: Chapter 71, Wis. Stats.

Laws enacted and in effect after January 22, 2021, new administrative rules, and court decisions may change the interpretations in this document. Guidance issued prior to January 22, 2021, that is contrary to the information in this document is superseded by this document, pursuant to sec. 73.16(2)(a), Wis. Stats.

FOR QUESTIONS OR COMMENTS CONTACT:

MS 5-77
WISCONSIN DEPARTMENT OF REVENUE
Customer Service Bureau
PO Box 8949
Madison, WI 53708-8949
Phone: (608) 266-2772
Fax: (608) 267-1030
Email additional questions to DORIncome@wisconsin.gov

The department welcomes your input on our guidance. Submit comments on this guidance document.

Guidance Document Number: 100277

Posted at: https://www.revenue.wi.gov/Pages/TaxPro/2021/news-2021-CAA-Impact.aspx