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.
Jay joined Sentinel Group as part of the ERISA Consulting team. Jay brings more than 20 years of legal experience and seven years direct retirement industry experience to Sentinel after providing legal, regulatory and compliance services to clients over the course of his career. He spent 10 years as in-house counsel to the Commonwealth of Massachusetts under the Transportation Secretariat.
Peter Epstein is a managing director of relationship management at Allocate, responsible for partnering with wealth advisory firms as they look to grow and expand their alternatives allocations. Prior to Allocate, he spent 11 years at J.P. Morgan Asset & Wealth Management, including seven years within its Global Alternatives group.
Jane Diplock AO is chair of the Supervisory Board of the Global Reporting Initiative. She was appointed chair of the GRI Supervisory Board in January 2026. She is a highly experienced corporate governance professional who has served on numerous boards and committees for listed, private and nonprofit entities, with a focus on sustainability standards, regulation, impact reporting and digitization. She is a former Chair of both the IOSCO Executive Committee and the Securities Commission of New Zealand. Her current governance roles include positions with the World Benchmarking Alliance, A4S, Abu Dhabi Global Market Appeals Panel, Wellington Zoo Te Nukuao, and Persefoni AI. Earlier in her career, she led government departments in New South Wales, Australia, and held executive leadership positions in Westpac Banking Corporation. Jane holds degrees in arts and law and a Diploma of Education from Sydney University, and a Diploma of International Law, International Economics and International Relations from the Australian National University, while she was a Chevening Fellow at the London School of Economics. In 2004 she was awarded the Order of Australia for her contribution to business and commerce.
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.