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.
Colin Royal is a recent graduate of Morehouse College, and current NYU graduate journalism student.
At Morehouse, he obtained the distinction of Co-Valedictoriant while being heavily involved on-campus. He was the former Editor-in-Chief of The Maroon Tiger and Director of Morehouse Journalism Departments 2024-2025 Senior Capstone Documentary.
Professionally, he has worked with multiple companies covering a variety of disciplines. He has worked for professional media organizations like Dow Jones and the Harvard Business Review.
This summer he joined The Bond Buyer team after training with Dow Jones' News Fund.
Kathryn Miller covers wealth management and financial advisors for Financial Planning as part of the Dow Jones News Fund program.
Her reporting focuses on the people, firms and policy issues shaping the advice industry, with a particular interest in the intersection of wealth management and health care. She brings experience covering health care, business, politics and local government.
Kathryn is completing her master's degree in Magazine, News and Digital Journalism at Syracuse University. She has served as assistant executive producer of The NewsHouse and worked as a health reporting intern at Syracuse.com. She previously covered health care for the Fort Worth Report, where her work included reporting on hospital expansions in Fort Worth.
A native of Arlington, Texas, Kathryn earned her bachelor's degree in psychology from Texas A&M University in 2023. At Texas A&M, she was editor of the student newspaper.
In her free time, Kathryn enjoys yoga, very long walks and supporting her local movie theater.
Connect with Kathryn on LinkedIn or reach her at kathryn.miller@arizent.com.
Chip Merlin is a nationally recognized attorney who has dedicated his career to representing policyholders in insurance disputes. He is the founder of Merlin Law Group and can be reached at cmerlin@merlinlawgroup.com.
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.