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.
Rebecca Liebman is co-founder & CEO of LearnLux, the leading workplace financial well-being provider.
Bryan Brizzi is a seasoned technology executive and transformation leader with over two decades of experience driving digital innovation in the insurance industry. As Chief Digital Officer at Crum & Forster, he leads the modernization of the Surplus & Specialty IT organization, delivering scalable, technology-driven solutions that enhance underwriting efficiency, reduce technical debt, and optimize business processes.
Rick Hirsh is a seasoned executive with 30+ years of experience leading management, sales, finance, and operations to drive growth in technology and software-enabled B2B services. He currently leads as CEO of Beneration, an insurtech platform built to cut waste and simplify the most error-prone parts of benefits billing for employers. Rick has driven organic growth, completed over a dozen acquisitions, and led four successful investor exits. Previously honored as Ernst & Young Entrepreneur of the Year, Rick and his companies have been recognized on the Inc. 500, Deloitte's Fast 50, and CRN Solution Provider 500.
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.