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.
Joey Pizzolato is a reporter at American Banker, covering all things payments, including stablecoins, agentic AI, buy now, pay later and earned wage access. He is based in New York.
Prior to reporting on payments, Joey spent nearly six years covering auto finance as the editor of Auto Finance News, and has also covered the mortgage and housing industry, bank technology and marketing, state and federal regulation, fraud and the asset-backed securities market.
His work has earned him two Azbee Awards: One for investigative journalism examining the ease at which bad actors can obtain fraudulent employment verification needed to finance automobiles on social networks such as Facebook and Instagram; and one for enterprise news reporting that examined the lasting effects of inflation and COVID-19 pandemic on the subprime auto finance industry. In 2023, he was named a Goldschmidt FRED Fellow by the Society for Advancing Business Editing and Writing.
Joey holds a Master of Fine Arts from the Naslund-Mann Graduate School of Writing at Spalding University and a Bachelor of Arts degree from DePaul University.
Email Joey at joey.pizzolato@americanbanker.com. Reach him on Signal at @joeypizzolato.25
Tunua Thrash-Ntuk is president and CEO of The Center by Lendistry, a nonprofit organization dedicated to closing the racial wealth gap by anchoring small businesses and the communities where they do business.
John Alchemy, M.D., is founder and CEO of Rate-Fast.
He has been practicing occupational and family medicine since 1997 and is a diplomate of the American Board of Family Practice. Dr. Alchemy has performed and reviewed over 10,000 cases (and counting).
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.