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.
Kit Dickinson is an operations executive at ADP, leading ADP's industry-focused efforts in the construction industry. Previously, he was the president of IDI, where he was responsible for managing strategic partnerships, product innovation, sales, marketing and overall company leadership. IDI was acquired by ADP in 2021, and he now oversees the integration of IDI's capabilities into ADP technology.
Dr. Martin Mulyadi is a full professor of accounting at Shenandoah University who writes and provides expert commentary on technology, AI, analytics, and the future of education and professions. His work focuses particularly on the intersection of accounting technology, AI, and analytics. He teaches upper-division accounting and graduate-level business analytics courses. More about his work can be found at profmulyadi.com.
Christine Simone is the CEO & co-founder of Caribou, a software solution for the finance industry to include health care costs and plan optimization for financial plans.
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.