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.
Jim Lord has been with ADP for nearly three decades. His experience encompasses a wide variety of management and executive leadership responsibilities across the ADP portfolio, including Small Business Services and Retirement Services divisions. Currently, Jim is the senior vice president of ADP's Insurance Services division.
Andy Kunzweiler, CFA, is the direct indexing portfolio manager at Morningstar Wealth.
Previously, he was a senior portfolio manager at Northern Trust, where he managed direct indexing portfolios for a diverse clientele ranging from foundations and endowments to corporations and nuclear decommissioning trusts, to family offices and ultrahigh net worth individuals. He began his career in the analyst program at UBS Investment Bank and graduated from Boston College. He is a CFA charterholder and a member of the CFA Institute and CFA Society of Chicago.
Corinne Carr is a seasoned insurance regulatory and transactional attorney with 30 years of experience, including 15 years as a partner in BigLaw. In private practice, she regularly represented clients whose primary industry is not insurance such as logistics, shipping, marketplace, ecommerce, insurtechs, retail and manufacturing clients. Carr designed and implemented shipping insurance, embedded insurance, product warranty, service contract, and other insurtech programs for companies ranging from startups to Fortune 500s. She is widely recognized as the "go to" resource for designing innovative, but compliant, structures to boost revenue during the purchase and post-purchase customer experience. Corinne joined Route as its chief compliance officer in June 2022.
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.