The more than 160,000 New Jersey businesses that were awarded a combined $20 billion in federal pandemic-relief loans will not have to pay any state taxes on those funds, the New Jersey Treasury Department announced on Feb. 9.

The move is meant to help cash-strapped businesses and follows a similar move by federal tax officials. Congress created scheme, the Paycheck Protection Program, as part of the Coronavirus Aid, Relief and Economic Security Act in March 2020 as the pandemic began to take hold. Unemployment soared as entities closed indefinitely, or used a combination of layoffs and furloughs to stay afloat. The PPP was designed to enable businesses to continue paying workers during the disruption.

The federal Small Business Administration said it awarded $17 billion to nearly 160,000 businesses in New Jersey during 2020 and $3 billion so far this year.

In order for the loans to be forgiven, businesses must use the loans for eligible expenses – payroll and employee retention or rehiring – to keep workers employed and to stay in business. Both the federal and now state government allow businesses to deduct other expenses on their tax returns paid for with loan proceeds.

“PPP loans have played a critical role in helping Main Street stay afloat and keeping residents employed,” State Treasurer Elizabeth Maher Muoio said in a statement. “Given that the vast majority of these loan recipients are smaller businesses, the decision to make these loans tax exempt and the proceeds tax deductible was a logical one as we continue to grapple with COVID’s prolonged impact.”

Lawmakers initially proposed a measure to make PPP loans tax-exempt, but the state Treasury said it can enact those changes without legislative approval.

Several of the sponsors praised the action, as did several top lawmakers.

Senate Budget Chair Paul Sarlo, D-36th District, said the new policy would ensure businesses would not receive “surprise tax bills” that they can’t afford.

“That’s not what they signed onto, not what they expected and not what they planned for,” he added. “The goal of the CARES Act funding is to help these businesses to survive the economic hardships of the shutdown, and Congress’s intention was to allow the loans to be forgiven with no tax consequences.”