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.
Paula Grieco is a senior vice president at Commonwealth, a national nonprofit building financial security and opportunity for financially vulnerable people through innovation and partnerships.
Adam Kacenjar is chief of staff at HealthEdge GuidingCare, connecting GuidingCare's executive leadership into the broader HealthEdge organization. He collaborates to drive strategic decisions and high-impact projects. Dedicated to enabling world-class care with technology, Adam has nearly 20 years of experience, from the patient bedside to enterprise-scale population health. Adam is also the owner of the CareManager business unit, where he oversees engineering and sponsors both integration and implementation projects, broadening the GuidingCare client base and interoperability inside the HealthEdge ecosystem.
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.