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.
Suhas Sethi is the Head of the Global Insurance Business Unit at WNS. He has close to three decades of experience in global financial services BPM.
He leads a specialized team of 11,000+ domain experts at WNS. Suhas’ service portfolio spans across Life, Pensions, Property & Casualty Insurance and includes end-to-end Business & Digital Services across Underwriting, Policy Maintenance, and Claims. In addition to delivering on the core Insurance back office operational excellence, Suhas’ portfolio includes knowledge intensive areas like customer sales and servicing, actuarial, data analytics, and finance and accounting. Besides the business leadership and P&L accountability, Suhas is also responsible for Enterprise Risk and Process Compliance for the Insurance BU.
Prior to WNS, he has donned leadership roles at Cognizant and GE / Genpact.
Sarah Moloney is a subeditor at the Official Monetary and Financial Institutions Forum.
Emma McGarthy is the head of the head of the Sustainable Policy Institute at Official Monetary and Financial Institutions Forum.
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.