Raleigh, NC – Today, the NC House voted 112-1 to pass House Bill 334 – Temporarily Align PPP Treatment to Federal Treatment, which will provide tax relief for small businesses and individuals impacted by the COVID-19 pandemic.

After the bill’s second reading on the House floor, House Finance Chairman Rep. Keith Kidwell (R-Beaufort) offered an amendment that would extend tax relief to thousands of North Carolinians who were unemployed during the COVID pandemic.

The amendment brings North Carolina in line with the federal CARES Act of 2020 and the American Rescue Plan Act of 2021 by excluding unemployment compensation from taxpayers’ gross income up to the amount specified under federal guidelines. The provision will apply for taxable years of 2020 and 2021.

“We should not be taxing COVID Relief money,” said Rep. Kidwell. “The federal government got it right, forty-seven other states got it right, and it is time for North Carolina to correct its position on the issue.

House Bill 334 was filed by Rep. Ray Pickett (R-Ashe) and Rep. Jason Saine (R-Lincoln) to reduce the tax burden on small businesses who utilized PPP loans to keep employees on the payroll and keep their businesses open.

“This is a commonsense bill to help North Carolinians who have been dealing with the significant economic impact of COVID-19,” said Rep. Ray Pickett. “For this situation, we felt it was best to simplify the process, align with the Federal tax guidelines specified in the American Rescue Plan, and save folks a little more money towards the bottom line.”

Specifically, the bill would allow PPP loan recipients to deduct expenses paid for by the loans. Currently, North Carolina is one of only three states that do not allow business owners to deduct expenses paid for by PPP loan funds.

“Not only did our business community keep the economy moving last year, they kept countless North Carolinians employed and able to support their families,” said Rep. Saine. “This bill will make life easier for our small businesses, job creators, and tax professionals as they deal with the financial aftermath of COVID and work to get our state back on track in 2021.”

In 2020, the federal government passed the CARES Act to provide relief to those affected by the COVID pandemic. This included the Paycheck Protection Program (PPP), which allowed businesses to receive forgivable loans for payroll and basic operating expenses such as rent, utilities, and personal protective equipment. Historically, loans have been treated as taxable income and are not tax-deductible.

The American Rescue Plan Act of 2021 clarified that PPP loans were to be nontaxable and directed the federal government to allow businesses to deduct expenses paid by PPP funds. Additionally, section 9042 of the American Rescue Plan Act allowed taxpayers to waive unemployment compensation from their gross income for tax years 2020 and 2021.

House Bill 334 would align North Carolina’s treatment of PPP loans and unemployment compensation with tax guidelines in the federal relief legislation and reduce the state tax burden of individuals, families, and businesses who were impacted by COVID-19. The bill will be sent to the State Senate for further action.