Ohio Gov. Mike DeWine signed Senate Bill 18 into law, which ensures that expenses paid with forgiven Paycheck Protection Plan loans become deductible for state income tax purposes.
The legislation, which was supported by the Ohio Society of CPAs (OSCPA) will conform tax laws in the Buckeye State with recent changes to federal tax law, including deductibility of expenses from the Paycheck Protection Program and excluding $10,200 in unemployment compensation from income tax.
Ohio-specific provisions in S.B. 18 will exclude 2020 (and any in 2021) Ohio Bureau of Workers’ Compensation refunds/dividends from CAT; reduce pass-through entity withholding rates for out-of-state owners and exclude PPP second-draw loans from CAT.
SB 18 amends Ohio law to incorporate changes in the Internal Revenue Code since March 27, 2020. The March 2020 law, H.B. 197, originally brought Ohio into conformity with the CARES Act (HR 748) and its applicability to Ohio’s income taxes. Changes include the following:
Changes affecting individuals
- A temporary look-back rule for determination of earned income for purposes for the earned income tax credit (EITC). (Ohio allows a piggy-back credit based on a taxpayer’s federal EITC.)
- A temporary expansion in the amount of and eligibility for the EITC.
- A temporary increase in the amount of the child and dependent care credit. (Ohio allows a piggy-back credit for certain taxpayers that receive the federal child and dependent care credit.)
- The extension of an exclusion from gross income for the discharge of indebtedness of a qualified principal residence.
- A temporary exclusion from gross income for the discharge of student loan indebtedness.
- A temporary exclusion from gross income for the first $10,200 received in unemployment benefits for taxpayers with $150,000 or less in FAGI or $300,000 for joint filers.
- An extension of the temporary allowance of a deduction for charitable contributions by non-itemizers.
- A clarification that the educator expense tax deduction includes expenses for personal protective equipment and other supplies related to the prevention of the spread of COVID-19.
- An exclusion from gross income for emergency financial aid grants.
- The transition from a deduction for qualified tuition and related expenses to an increased phase-out threshold of the Lifetime Learning Credit.
- Temporary special rules for health and dependent care flexible spending arrangements.
Changes affecting businesses
- The allowance of a 30-year depreciation period for certain residential rental property.
- The temporary allowance of a full deduction for business meals (generally, business meals are only 50 percent deductible).
- A clarification of the tax treatment of Paycheck Protection Program loan forgiveness, including a clarification that expenses paid with covered loans can be deductible.
- An extension of the payment deadline for certain deferred payroll taxes (including certain self-employment taxes).
- The extension of the work opportunity tax credit. (Ohio allows a deduction for employee wages that could not be deducted from the business owners’ FAGI due to the work opportunity credit.)
- The extension of an exclusion for certain employer payments of student loans.
- An extension of the limitation on excess business losses for non-corporate taxpayers.
- An exclusion from gross income for Restaurant Revitalization Fund (RRF) grants and Targeted Economic Injury Disaster Loan (EIDL) advances.
On Feb. 9, the Senate Ways and Means Committee amended the bill to exclude Ohio Bureau of Workers’ Compensation refunds/dividends from the CAT). This change applies to tax periods beginning on and after Jan. 1, 2020, thus exempting from the CAT the entire $8 billion the BWC issued in 2020.
A day later, the Ohio Senate unanimously voted in favor of Senate Bill 18, sending the tax conformity and Paycheck Protection Plan deductibility legislation to the Ohio House for consideration.
The Ohio House of Representatives unanimously voted in favor of the legislation on March 24, sending it DeWine’s desk.
If you have questions on how SB 18 may impact your taxes, please reach out to the Tax Team at Zinner & Co.