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The Tax Foundation is the nation’s
leading independent tax policy
research organization. Since 1937,
our research, analysis, and experts
have informed smarter tax policy
at the federal, state, and global
levels. We are a 501(c)(3) nonprofit
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Designer, Dan Carvajal
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State Conformity to
Federal Pandemic-Related Tax
Provisions in CARES and ARPA
• The Coronavirus Aid, Relief, and Economic Security (CARES) Act made
temporary structural changes to the federal tax code to enhance business
liquidity, including more generous treatment of net operating losses and
business interest expenses.
• Under the CARES Act’s Paycheck Protection Program (PPP), businesses
that receive loan forgiveness are not required to include the discharged
indebtedness in taxable income; expenses paid for using forgiven PPP loans
are deductible as usual.
• The American Rescue Plan Act (ARPA) excluded from taxable income, for
qualifying taxpayers, the first $10,200 in unemployment compensation (UC)
benefits received in 2020.
• As of March 29, 2021, five states follow the CARES Act in allowing NOLs
to be carried back up to five years for tax years 2018, 2019, and 2020. Five
additional states offer state-defined NOL carrybacks of two or three years.
• Only 12 states limit NOL carryforwards such that they may not reduce
taxable income by more than a specified percentage per year in tax years
2018, 2019, and 2020.
• Twenty states and the District of Columbia follow the CARES Act in
increasing the net interest deduction to 50 percent of modified income for
tax years 2019 and 2020.
• Thirty-three states and the District of Columbia follow the federal
government in fully excluding forgiven PPP loans from taxable income while
allowing expenses paid for using those loans to remain deductible.
• Fifteen states a