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.
Natalie Neelan is director of innovation at Boston Mutual Life Insurance, she leads a team dedicated to turning emerging ideas into measurable business impact. Previously, she founded and scaled her own consultancy, Straightline Innovation, and partnered with major organizations including Nationwide and Highmark. Her expertise spans strategic communications, human-centered design, and building ecosystems that accelerate corporate transformation. A Certified Digital Marketing Professional and LUMA Human-Centered Design Facilitator, Natalie is also the author of Rebel at Work: How to Innovate and Drive Results When You Aren't the Boss. She earned her MBA in Entrepreneurial Leadership and Strategy from Chatham University and her BS in Communications from Clarion University of Pennsylvania.
Manish Naik serves as the President of Cigna Healthcare's Dental and Vision benefits products. The business currently serves over 17 million customers across the United States. In this role he is responsible for network strategy and development, product strategy and development, provider relations, sales operations, innovation, and clinical execution.
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.