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.
Kim Lockett is Vice President of Customer Success and Services for Nvoicepay, a FLEETCOR company. She has more than 30 years of experience in payments, with a heavy focus on back-office operations and customer engagement. Prior to Nvoicepay, Kim held operations management and leadership positions with Comdata, Crestmark Bank, and Regions Bank.
Jonathan Matus is the CEO of Zendrive, a mission-driven company making roads safer with data and AI. Zendrive has the largest driving dataset in the world – more than 180 billion miles of data – and publishes industry-leading research on dangerous driving to raise awareness and improve driving behavior. In addition to measuring driving risk factors like speeding, distracted driving, and stop sign violations, the company partners with leading insurance providers and mobile carriers to provide safer driving solutions that save lives. Prior to Zendrive, Jonathan spent six years at Facebook and Google, where he worked on mobile and speech recognition projects. As one of Google’s early Android team members, he led the product marketing team in catapulting Android from industry newcomer to best-selling mobile platform within 18 months. He graduated cum laude from Harvard University with an Honors thesis on Artificial Intelligence.
Michael DeLong works for CFA’s Campaign for Fair Auto Insurance as the Research and Advocacy Associate. He conducts research on auto insurance and advocates for better, fairer, and more affordable practices that will protect consumers.
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.