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.
Charles C. Roberts, Jr. is president of C. Roberts Consulting Engineers, Inc. (http://www.croberts.com). He has a bachelors degree, masters degree and a Ph.D. in engineering. He has worked as a consulting engineer in the area of accident reconstruction and failure analysis since 1976. He has published several books and articles on accident reconstruction, failure analysis and history.
Wilbur Swan is the CEO of Catchlight, a software startup incubated within Fidelity Labs, where he serves as a managing director.
Prior to Fidelity, he led commercialization of the Thomson Reuters enterprise data and AI platform and was a co-founder of ContactNet, which was acquired by Thomson Reuters. He is an accomplished speaker, innovator and thought leader at the intersection of technology, data and artificial intelligence.
Stephanie Schomer is Vice President of Editorial Innovation at Arizent, spearheading efforts to nurture our seven communities through industry-leading content, breaking news and professional development tools. She is focused on not only growing our audiences, but delivering unbeatable value to each reader.
Stephanie joined Arizent in 2021 and spent three years as Editor-in-Chief of Employee Benefit News before stepping into her current role. Prior to Arizent, she was the Deputy Editor of Entrepreneur magazine, and previously served as an Editor at Fast Company, Architectural Digest and Entertainment Weekly. She knows the value of connecting with and serving unique audiences, and relishes the engaged, niche communities we support at Arizent.
Stephanie spent two years as the Co-chair of Arizent's women-focused employee resource group, Allyship for Women's Empowerment, working to improve the culture and benefits for the organization's employees. She graduated from Penn State University with a B.A. in journalism.
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.