Small businesses that manage to get their Paycheck Protection Program loans forgiven may find themselves losing valuable tax breaks, according to new guidance from the Internal Revenue Service.
Companies that qualify for loan forgiveness under legislation Congress approved won’t be able to deduct the wages or other businesses expenses they paid for using the loan, according to an IRS notice published Thursday.
“This treatment prevents a double tax benefit,” the agency said in the notice. “This conclusion is consistent with prior guidance of the IRS.”
The guidance clarifies a point of confusion in the $670 billion small business loan program to help businesses struggling as the coronavirus has brought the economy to a standstill. The law states that the forgiven loan won’t be taxed, but didn’t specify whether companies could still write off the expenses they covered with that money.
Carrie Duarte is a partner and Workforce of the Future & Human Resources M&A leader at PwC. With over 20 years of experience consulting to large complex global companies and private equity firms, Carrie leads PwC’s Workforce of the Future platform, helping organizations develop and implement strategies to optimize the impact of the technological, social, and demographic disrupting trends on their workforce strategy, workforce performance and experience, and workforce environment. In addition, she leads the PwC US HR Transaction Services practice which advises clients on workforce aspects of acquisitions, divestitures, business restructuring and capital events. She is an actuary and dedicated client service partner.
Anthony Hunt is a product specialist at Intuit ProConnect, helping professionals transform their practice in the cloud. He has been with Intuit for seven years, previously serving Intuit customers in various functions, including account management. Anthony is also the host of Intuit’s first-ever YouTube series, "#TaxProTalk," which discusses tax, tax practices and tax products.
The tax code permits companies to write off businesses expenses, such as wages, rent and transportation expenses, but generally doesn’t allow write-offs for tax-exempt income.
The ruling adds to the list of stumbling blocks facing businesses as they try to qualify for the Paycheck Protection Program loans.
Small businesses have reported technical issues in trying to apply for the funds, which restarted Monday after the first round of funding ran out after just 13 days.
The program, run by the Small Business Administration, provides funds to cover eight weeks of payroll costs and the loans are forgiven if the employers keep workers on the job or quickly rehire laid-off workers.