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.
Rodney E. Hood is a board member of Zest AI. He is the former chairman of the National Credit Union Administration.
Ashley Ettwein is Head of Product at Pepper. Pepper is the leading IoT platform that enables brands, manufacturers, retailers and service providers to deliver smart home solutions to their customers. The customizable, US cloud-based Platform-as-a-Service (PaaS) with real-time video streaming provides a cost-effective and easy way for businesses to quickly launch and monetize products and services. With the addition of Notion smart monitoring (acquired December 2022), Pepper expands their insurance offering providing comprehensive, turn-key smart home programs. For additional information, visit: pepper.me.
As Vice President of Human Resources, Jena is responsible for executing a modern and scalable HR structure within the company. She manages all Human Resources programs, policies, procedures, and services, and her depth and breadth of experience with people and culture, and the application of that knowledge, are incredibly valuable.
Jena joined Central in 2020 as our Director of Organizational Development, focused on leadership development and employee engagement, as well as our employees' mental health and well-being. Before Central, she held the Senior Organization Development Psychologist/Consultant role with the Department of Veterans Affairs.
Jena earned a Bachelor of Science in Psychology from The Ohio State University and a Masters in Psychology and a Doctorate in Clinical Psychology from Indiana State University.
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.