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.
Meredith has almost four decades of industry operations and technology experience spanning all lines of business and the entire insurance value chain. During her 33 years at Liberty Mutual, she was responsible for numerous digital, product, and organizational transformations. Meredith was most recently the industry go-to-market strategist at Ushur, an AI SaaS startup, driving growth and brand awareness across both the P&C and LA&H segments.
As part of the Advisory and Research team at ReSource Pro, Meredith works directly with carrier advisory clients, engages in research efforts, and supports carrier consulting projects.
Sathish Kumar Manimuthu serves as the CTO at NeuralMetrics, an insurtech offering AI-powered risk-assessment intelligence for P&C carriers, brokers, and agents. With experience in launching innovative technology and products for startups and Fortune 500 companies, Sathish is responsible for the company's suite of data-delivery engines and AI models.
Ronen Assia is a Managing Partner at Team8.
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.