The Consolidated Appropriations Act 2021 (Act), signed into law December 27, 2020, made various law changes including some that affect 2020 returns, such as:
1) EIDL grants and loan forgiveness are nontaxable. And the expenses paid with these funds are deductible.
2) PPP loan forgiveness was nontaxable under prior law, but the Act now states taxpayers are allowed to deduct expenses even though they are connected to nontaxable income.
3) The Earned Income Tax Credit can be computed using the prior year’s earned income if it was higher than the current year’s earned income.
Each individual state has its own taxation rules. We have heard that several states did not follow this Federal treatment (i.e., decoupling) while other states do follow Federal. And, no, we do not have list of which states followed and which states did not follow.
