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.
Amy Carlisle is president of MSI, an independent managing general agency (MGA) in the United States.
Deborah "Deb" Dioguardi is Executive Vice President and Professional Lines National Practice Leader at Jencap, where she drives the growth and strategic direction of the firm's management liability, professional liability, and cyber liability practice. A highly respected wholesale broker, industry leader, and recognized thought leader, Deb has dedicated her entire 25+ year career to Jencap, building a reputation as one of the foremost experts in professional lines insurance. Her contributions to the industry have earned national recognition, including the 2023 ACORD Women's Insurance Advancement Award and a place on Insurance Business America's 2025 Hot 100 list. Deb holds a bachelor's degree from the New York Institute of Technology and currently serves on the Board of Directors for the Insurance Brokers Association of New York (IBANY).
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.