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California does not follow Federal law for all the CARES Act benefit

Being a California tax preparer is an exciting job because we get to memorize two versions of the tax law: Federal Tax Law and California Tax Law. Sometimes the Feds and CA are the same… and sometimes they are different. But, they are different often enough that California has a three-page form we fill out each year called Schedule CA which makes 53 adjustments to account for the tax law differences between Fed and State.

As you know, Congress passed two laws (FFCRA and the CARES Act, and possibly more coming) last quarter with numerous changes to the tax law. For some of these law changes California agrees and for others California does not. Below is a list of where CA conforms and not as of today. Keep an eye on the California legislature because they may pass a bill later this year where they agree with more/all of the Federal tax law changes but for now, taxpayers should make plans based on the current tax laws.

Where California Conforms (i.e. agrees with the new tax laws):

  • Generally CA conforms to retirement-related items such as exclusion of the early withdrawal penalty and  no Required Minimum Distribution for 2020.

Where California Currently Does not Conform:

  • Loan forgiveness related to the Paycheck Protection program. The forgiven portion of the loan will need to be included in income for CA purposes (This isn’t a big issue if the owner has deductible expenses that were paid with this loan because they include the income and they include the expense.  But if the business owner is using the money to replace draws, then the draws are not deductible so this could be an unfortunate income adjustment for the business owner for CA purposes)
  • Changes made with regard to increasing allowable loan amounts from a qualified retirement account from $50k to $100k
  • Taxpayers who take the standard deduction can get an additional deduction of $300 for cash donations made
  • NOL Carrybacks
  • Business Interest Limitations
  • HSA account changes (Generally, CA does not recognize HSA accounts)
  • Student Loan forgiveness (Editor’s Note: I am not sure what the FTB is referring to here. I don’t see any loan forgiveness provisions in the Acts just loan forbearance provisions. More info coming)

 

 

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