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.
Janna Hurd is a market developer at Thrivent, a Fortune 500 financial services organization, whose primary focus is recruiting new financial advisors to the organization.
For over 20 years, she has worked in retirement and financial consulting. She holds an MBA in International Business and Finance from Sam Houston State University, as well as various financial and insurance licenses. Her passion is financial literacy, and she hopes that her work in various communities will build stronger families and futures.
Ryan Mandell is the director of claims performance for Mitchell's Auto Physical Damage division. He works hand-in-hand with insurance executives and material damage leaders to provide actionable insights and consultative direction for their claims organizations. Prior to joining Mitchell, Mandell was director of Northern Operations for B&R Auto Wrecking, a manager for Precision Collision Auto Body, and a claims representative for Progressive Insurance. He frequently speaks at industry events on trends in auto insurance, collision repair and vehicle complexity and has been quoted in publications including The New York Times, Wired UK, Road & Track and Automotive News.
Phil Strazzulla is the Founder of SelectSoftware Reviews, a website dedicated to helping HR teams find and buy the right HR software through free, in depth advice and analysis. Phil started his career working in venture capital before getting his MBA at Harvard Business School.
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.