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State-funded COVID-19 relief package includes additional $2B in grants for California's small businesses

Legislature, administration negotiating details on state tax relief for PPP loan recipients

February 24, 2021 12229

Quick Summary:

The state-funded package provides an additional $2.1 billion in funding for small-business grants. Still under negotiation is a measure that would allow business owners who received Paycheck Protection Program loans to deduct eligible PPP-funded expenses on their state income tax returns.

Dentists and other small-business owners suffering ongoing pandemic hardship in California can receive immediate relief through a $7.6 billion legislative package signed into law yesterday by Gov. Gavin Newsom.

The state-funded package provides an additional $2.1 billion in funding for small-business grants, $600 in separate one-time payments for qualifying taxpayers and households and additional financial aid and resources to assist individuals, families, businesses and critical child care services.

Still under negotiation is a measure that would allow business owners who received Paycheck Protection Program loans to deduct eligible PPP-funded expenses on their state income tax returns ― thereby bringing state law into alignment with federal law. CDA has sent a letter of support for the measure urging quick action by the Legislature and Newsom Administration since tax season is already underway.

$2.1 billion in new funding for small-business grants of up to $25,000

The California Relief Grant Program, which awards direct grants ranging between $5,000 and $25,000 to small businesses impacted by the pandemic, received an additional $2.1 billion in new funding ― a fourfold increase over the $500 million distributed to applicants in rounds 1 and 2. 

The first application round opened late December 2020, while round 2 opened Feb. 2 and closed Feb. 18. So far, award amounts have been based on each business’s annual revenue as documented in the business’s most recent tax return.

California’s Office of the Small Business Advocate administers the program, and the state-designated intermediary Lendistry distributes the funds. Details about the next application cycle will be published soon on the relief grant program website.

Measure would conform state law with federal law, offer additional tax relief

Specifics are still being hashed out and expected to be confirmed as early as next week, but one of the relief package’s measures would allow recipients of PPP and Economic Injury Disaster Loans to deduct up to $150,000 in eligible loan-funded expenses. Passage of the measure (Assembly Bill 80) would conform state tax law with recent changes to federal tax law, thereby eliminating one more financial burden for California businesses that are still struggling during the economic downturn. 

In California, the average PPP loan amount for dental organizations was $37,370, according to a study published last November in Dental Economics. That number falls well below the proposed cap of $150,000, which should signal that the vast majority of dentist employers who received first- or second-draw PPP loans will benefit from the state tax relief.

CDA has urged the Legislature and Newsom Administration to pass the measure since its introduction  last week and before businesses finalize their state tax returns. Other major supporters include the California Medical Association, the California Restaurant Association, the California Optometric Association and Family Business Association of California. 

Direct stimulus payments to qualifying individuals

The package also provides the following direct one-time payments:

  • $600 to households receiving the California EITC for 2020
  • $600 to taxpayers with individual tax identification numbers but who were precluded from receiving the $1,200 and $600 federal payments
  • $600 payments to households with ITINs and income below $75,000

ITIN taxpayers who also qualify for the California EITC would therefore receive a total of $1,200 and can expect to receive their payments soon after they file their 2020 tax returns, according to the governor’s news release. The release provides details about the package’s additional relief for individuals, families, heavily impacted licensees, community college students, critical child care and agricultural workers.

Watch the CDA newsroom and social media channels for updates on the reopening of the California Relief Grant Program and passage of the state-tax relief measure.