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.
Greg Baer is president and CEO of the Bank Policy Institute.
Dr. Harpreet Nagra is a behavioral scientist, clinical researcher, and licensed psychologist with over 15 years of experience in non-profit organizations, academic institutions, medical clinics, and private practice. At One Drop, Dr. Nagra guides the application of behavioral science frameworks and methodologies across key components of our AI-powered platform, including one-on-one coaching, goal setting, health predictions, and an interactive learning experience.
Jason is a solutions architect and team lead with over 10 years of experience in technology and cybersecurity. Using his knowledge of methods used by cybersecurity hackers, Jason educates companies and individuals on best practices for staying safe in all things cyber and implementing efforts to avoid cybercrime. He works with businesses to develop customized cybersecurity strategies to keep their company and employees safe and productive, whether they work in-office or remotely.
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.