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.
Chasse Rehwinkel served as Illinois director of banking from 2019-2023 and is currently president of Devon Bank.
Steve Markle is chief operating officer of Itemize, where he leads the go-to-market units, encompassing product, sales and marketing. With a distinguished career spanning more than 25 years in B2B technology, Markle brings deep expertise and leadership to Itemize. Markle was previously the president and CEO of BirchStreet, an e-procurement and accounts payable platform for the hospitality industry, and vice president of solutions management at SAP Ariba.
Matt Hasan is an AI strategy advisor with four decades of experience in financial services, including leadership roles at Deloitte, IBM Global Business Services and Capgemini. He writes on the economic and governance implications of AI integration across underwriting, pricing and risk management. He holds a doctorate in economics.
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.