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.
Rod Griffin is senior director of consumer education and advocacy at Experian.
Darin Campana is a Senior Manager of Insurance Consulting for EPAM Continuum. In this role, he provides advisory services to insurance clients through their transformation and modernization journeys. With more than 26 years of experience across consulting and insurance industries, Darin helps clients enable technologies in the disruption of today's insurance markets including intelligent process automation, big data, artificial intelligence (AI), omni-channel applications and IoT.
Steven Tesler is Senior Manager of Insurance Consulting for EPAM Continuum, the integrated business, technology and experience consulting practice of EPAM Systems, Inc. With more than 25 years of experience supporting the Insurance Industry as a Consultant, Technology Strategist, and Solutions Consultant, Steven has a track record of managing cross-functional teams in executing strategic initiatives across the business, finance, operations, and technology from design through implementation.
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.