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.
Anli Chen is managing director of tax automation & innovation at BDO USA.
Nicole Mwesigwa is the co-founder & COO of iCover, a Missouri-based insurtech company that has designed the "Best Life Insurance Buying Experience." She has over 20 years of experience in InsurTech with expertise in eApp innovation, AI-based underwriting, and compliance. Prior to iCover, she built Reinsurance Group of America's inaugural predictive underwriting service. As a social entrepreneur, innovator, and digital insurance leader, Nicole is paving the way for a new era in the insurance industry where technology serves as a catalyst for change, enabling better, faster, and more personalized services.
Kathy is the Chief People Officer and leads all aspects of people strategy at Cognizant. She guides how the company attracts, develops, engages, and rewards its diverse global workforce. She is focused on providing an exceptional associate experience for talent at all career stages and ensuring Cognizant is an employer of choice in the industry
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.