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.
Paola Peralta is an Associate Editor at Employee Benefit News and has been with the team for five years. She is a proud UCF journalism graduate who got her start through a Dow Jones News Fund business internship and has since spent the majority of her career covering technology, healthcare, financial wellness and professional development across various industries.
Paola is especially passionate about telling stories that focus around workplace culture and employee experience such as Gen Z's struggles to navigate the workplace, how AI is disrupting businesses and the realities of diversity and equity efforts, as well as how current events are affecting employees personally and professionally. Her reporting on EBN's podcast, Perk Up!, earned the team a regional silver award from the AZBEE Award of Excellence in 2025. She has also interviewed several winners of EBN's Excellence in Benefits Awards, including top CEOs and CHROs from Lyft and Walmart.
Bernadette Berdychowski is a reporter with Financial Planning. Follow her on Twitter at @bberny14.
Michael Cummins is executive vice president and head of treasury solutions for Citizens Bank.
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.