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.
Rachel Anderika is chief operating officer and chief trust officer of Anchorage Digital Bank, the first federally chartered digital asset bank in the United States. She previously served as a national bank examiner at the Office of the Comptroller of the Currency. She was recognized in 2025 as one of American Banker's Most Powerful Women in Banking.
Paul Blowers is partner and CIO at Plante Moran, where he oversees the firm's strategic technology vision. His deep experience in all aspects of IT strategy and innovation enables him to advise on a wide range of issues, including data analytics, enterprise architecture and large-scale business technology transformation.
Loreene Kemperman, Product Owner at Apex HCM by IRIS, brings over a decade of expertise in payroll regulation and compliance across the U.S., making her a trusted advisor in navigating complex legislative environments and their impact on payroll systems. With a strong background in software validation, testing, and system compliance, she excels in ensuring that SaaS and SAP solutions meet regulatory and functional requirements through thorough testing, user acceptance validation, and traceability to key requirements. Loreene's ability to deliver effective training and documentation, combined with her exceptional technical communication skills, enables companies to remain agile and compliant as regulations and technologies rapidly evolve, particularly in today's dynamic regulatory landscape.
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.