Governor Northam signed SB 1146 and HB 1935 which conforms Virginia’s tax code to federal tax provisions from the taxable year 2020.  Previously, the Senate passed the legislation unanimously while the House voted 95 Yes – 2 No. 

Because of the bill’s emergency clause, conformity goes into effect immediately and is retroactive.

The biggest issue of the legislation was how Virginia would treat the Paycheck Protection Program (PPP) and Rebuild Virginia loans.  The House and the Senate each had their own version of Tax Conformity bills this year. Both bills allowed for a business that received a PPP loan to exclude the forgiven loan amount from their income, however each created a cap for maximum deduction to cover one’s business expenses related to their PPP Loans.  The Senate version created a $100,000 cap, while the House version only allowed one to deduct up to $25,000. With immense pressure from NFIB and other business groups, the conference committee ultimately choose the Senate version of a $100,000 deduction cap.

With the Governor’s approval, businesses are eligible exclude the full forgiven loan amount as well as deduct up to $100,000 of business expenses related to the PPP or Rebuild Virginia Loan. While we initially advocated for full deductibility, it was clear from the Governor and legislators that was not on the table. The $100,000 cap will allow full deductibility for 80% of Virginia Small Businesses that received a PPP loan. Rebuild Virginia grants will receive the same tax treatment.

Here are the main components of the legislation:

• Excludes PPP loan forgiveness amount from income
• Provides up to $100,000 in deductions for business expenses paid with PPP money
• Provides same tax treatment for Rebuild Virginia grants
• Is now in effect and is retroactive to provide timely filing for individuals & businesses
• Provides over 80% of loan recipients FULL deductibility    

Other components of the legislation include:

• COVID-19-related retirement distributions.
• Above-the-line charitable contributions deduction.
• Deduction limitations for certain charitable contributions.
• Exclusion of educational payments.
• Extension of the $300 deduction for non-itemizers to taxable year 2021.
• Enhancing the charitable deduction for individuals for certain contributions.
• Temporary full business meals deduction.
• Extension of exclusion for certain employer payments of student loans.
• Depreciation of certain residential rental property over a 30-year period.
• Temporary enhancement of the EITC. 
• Repeal of the deduction for qualified tuition.

The Virginia Department of Taxation released Tax Bulletin 21-4 containing important information about Virginia income tax returns. Your CPA will be using this guidance when assisting you with your tax filings.

We cannot thank you enough for your messages and calls to your elected officials to advocate for conformity. By raising your voice, we were able to pressure the General Assembly to approve the more generous deduction amount proposed by the Senate. 

If you have any questions, please feel free to contact Nicole Riley, Virginia State Director, at nicole.riley@nfib.org or 804.377.3661.