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.
Jose Morin is vice president of servicing at Brace
Erik Rettig is the senior manager of policy and regulatory affairs at Intuit where he shapes the company's global policy priorities in the self-employed and small business space for QuickBooks. He also drives the company's small business philanthropic strategy and future-of-work engagement. Previously, he worked at Small Business Majority, a small business advocacy organization. Prior to that, he held various positions on political campaigns and Capitol Hill.
Rina Wulfing is the policy and campaigns manager in North America for Wise. Based in New York City, she advocates for policies that further the mission of money without borders: instant, convenient, transparent and eventually free. Prior to Wise, she worked on financial services policy for two members of Congress, most recently for Congressman Denny Heck of Washington State as his chief of staff.
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.