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.
Stephen Graziano is the director of channel sales at Flimp Communications. Prior to joining Flimp, Stephen spent most of his career working in the insurance consulting space, specifically in the voluntary insurance and benefits communication arenas. He is passionate about helping employees and employers have a better experience with their benefits through better understanding, higher engagement, and cost savings for both parties.
Jessica Tuman is vice president of the Voya Cares Center of Excellence at Voya Financial. Voya Cares provides training and resources to help its staff and external stakeholders understand, employ and better serve those with special needs and disabilities and their caregivers to achieve the quality of life they seek today and through retirement. Learn more at voyacares.com. And, check out one of Voya’s recent ad campaigns, titled Growing Up, which features a family with special needs in three periods during the course of a lifetime.
Leslie C. Egiziano, MBA, SHRM-SCP, SPHR, is a human resources consultant at Paychex HR Services. She has over 15 years of experience working with Paychex clients in HR Solutions. She came to the company with a diverse work history which helps her connect with a variety of clients. She’s done everything from sales and marketing to establishing an HR department and hiring over 400 staff in a year and a half for a tech startup company — all while continuing her education and certification programs.
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.