Texas Franchise Update: Certain Federal Loans Forgiven by IRS not considered income for Texas Franchise Tax


May 12, 2021

(AUSTIN) — Texas businesses that had COVID-related relief loans forgiven by the federal government do not have to report those loan proceeds as income on their 2021 franchise tax reports, the Texas Comptroller’s office announced today after a bill related to the treatment of those loan dollars was passed by the Legislature and signed by Gov. Abbott.

House Bill (HB) 1195 applies to franchise tax reports originally due on or after Jan. 1, 2021. Forgiven loan proceeds from certain federal relief programs are not included in total revenue. Furthermore, expenses paid using those loan proceeds may be claimed as a cost of goods sold or as compensation, if eligible under current law, in the franchise tax calculation.

In 2020 and 2021, Congress passed several COVID-related relief packages, including the CARES Act, the Paycheck Protection Program and the American Rescue Plan. The federal government will forgive loans granted to businesses included in these laws, without requiring repayment, if they meet certain requirements.

“Under the law prior to the signing of HB 1195, forgiven loan proceeds generally were included in an entity’s total revenue,” Texas Comptroller Glenn Hegar said. “This inclusion could increase the amount of franchise tax an entity owed. I’m proud my agency was able to assist the Legislature and Governor Abbott in acting swiftly to prevent Texas businesses from facing taxes on relief dollars that kept employees on payrolls and helped prevent further economic damage during the worst of the pandemic.”

Hegar also reminds businesses that the due date for 2021 franchise tax reports has been automatically extended from May 15 to June 15. The extension, originally announced in February in response to the winter storms and power outages throughout the state, aligns the agency with the Internal Revenue Service, which extended the April 15 tax filing and payment deadline to June 15 for all Texas residents and businesses. The due date extension applies to all franchise taxpayers. No additional forms are needed.

Franchise taxpayers who need an extension beyond June 15 may file an extension request.

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