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.
Tom is a Principal in the Health practice and leads the voluntary benefits team at Buck, an integrated HR, pensions, and employee benefits consulting firm. For more than 20 years he has helped some of the country's largest and most respected employers design voluntary benefit programs that deliver on business objectives and drive greater employee engagement.
Usama Fayyad is Executive Director of the Institute for Experiential AI/ Northeastern University, Boston, MA.
Previously he was the Chairman & Founder: Open Insights, LLC, San Francisco, CA, USA (established in Seattle, WA, 11/2008). Chief Data Officer: Group MD, Barclays, London(2013-2016). Chairman Oasis500: appointed Exec Chairman by King Abdullah II of Jordan (2010-2016). Chairman & CTO: Blue Kangaroo (2010-2013), Burlingame, CA. 2004-08: Yahoo! Chief Data Officer/EVP – 1st CDO in industry. Co-Founder/CEO: Open Insights ('08), DMX Group (acquired by Yahoo! '04), Audience Science/digiMine ('00). 1996-00: led Microsoft Research Group & data mining SQLServer products. 1989-96: NASA's JPL earning Caltech's top research excellence award & U.S. Government medal-NASA. 1991: Ph.D. U of Michigan, Ann Arbor (2 BSE's: EE & CSE; MSE: CSE & M.Sc. Math)
Ruth is a Principal in Engagement practice at Buck, an integrated HR, pensions, and employee benefits consulting firm. She has conducted extensive employee surveys and focus group research to assess employee needs, define business strategy, and guide program design.
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.