![]() ![]() While most states with static conformity update their conformity statutes annually, the timing and uncertainty surrounding such updates adds a significant degree of uncertainty for taxpayers. Unlike rolling conformity states, static or “fixed date” conformity states adhere to the IRC as it existed at a specific point in time. Rolling conformity comes with a modest loss of control for states, but it generally provides taxpayers with the greatest degree of predictability. Some states use “rolling conformity,” whereby changes to the IRC are automatically adopted as they occur, meaning state policymakers must proactively enact legislation should they wish to decouple from federal changes. Conformity OverviewĪll states incorporate provisions of the federal tax code into their own tax systems, but how they do so varies widely. ![]() It also presents considerations for state policymakers to keep in mind as they contemplate changes to their conformity statutes related to these provisions. This paper provides a snapshot of how states currently conform to Internal Revenue Code (IRC) income tax provisions in general, as well as to the IRC’s treatment of NOLs, business interest expenses, forgiven PPP loans, and UC benefits. With these and other significant federal changes occurring in the course of just one year, states have faced the challenge of responding to these changes quickly in order to provide certainty to taxpayers. In addition, federal law provides that forgiven Paycheck Protection Program (PPP) loans are not included in federal taxable income, and business expenses paid for using those loans can be deducted as they would under normal circumstances.įor individual taxpayers who received unemployment compensation (UC) benefits in 2020, the American Rescue Plan Act (ARPA), enacted on March 11, 2021, excludes the first $10,200 of benefits from taxation for qualifying taxpayers. Much of the relief that was targeted to businesses under the CARES Act was provided by way of temporary, structural adjustments to preexisting provisions in the tax code, including more favorable treatment of net operating losses (NOLs) under IRC § 172 and business interest expenses under § 163(j). Fifteen states and the District of Columbia conform to ARPA’s exclusion of the first $10,200 in UC benefits received in 2020 for taxpayers with MAGI below $150,000.Ī year has passed since the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, providing a first round of federal aid to state and local governments, individual taxpayers, and businesses in the early days of the COVID-19 pandemic.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.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 20. ![]()
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