The legislation allows the state to generally conform to the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and the Consolidated Appropriations Act (CAA). However, the legislation specifically deconforms from three provisions of the CARES Act that temporarily change limitations applicable to the net operating loss deduction, excess business losses, and the business interest deduction. This legislation also deconforms from the provision of the CAA that permanently reduces the medical expense deduction threshold.

The legislation conforms to the federal tax exemption for Paycheck Protection Program (“PPP”) loan forgiveness and certain funding received under the Economic Injury Disaster Loan (“EIDL”) program. However, it partially deconforms from the provision of the CAA that allows taxpayers to claim a federal deduction for business expenses funded by forgiven PPP loan proceeds or EIDL funding proceeds. As a result, taxpayers must report a fixed date conformity addition equal to the amount of business expenses paid using tax-exempt EIDL funding when filing their Virginia income tax returns for Taxable Year 2020. The new legislation also limits the deduction for business expenses for PPP loan forgiveness recipients to a maximum of $100,000 for loans of more than $100,000 or up to the amount of the loan if less than $100,000. 

Additionally, the legislation provides an income tax subtraction for Taxable Year 2020 for up to $100,000 of all grant funds received by a taxpayer under the Rebuild Virginia program. 

The Virginia Department of Taxation recommends those who received PPP loan forgiveness or EIDL funding consult the Department's website for guidance on how to make adjustments related to Virginia's partial deconformity from the federal tax treatment of PPP loan forgiveness and EIDL funding. Those who received Rebuild VA grants should similarly check the Department’s website regarding the Rebuild Virginia subtraction.

For more information: https://www.virginia.gov/agencies/department-of-taxation/