Small business owners who got Paycheck Protection Program loans could qualify for big write-offs from their rescue money, amounting to what Treasury Secretary Steven Mnuchin has called a tax-break “double dip.”
The COVID-19 relief package set for a vote in Congress would clarify that business owners can deduct expenses paid for with PPP loans, which can be forgiven by the government without incurring a tax. The deduction benefit could generate more than $100 billion in tax savings for business owners, according to Brookings Institution estimates.
For more than 20 years, Stephanie has brought her passion for employee wellness to industries of all sizes. Her attention to aligning mental and physical health brought forth a much-needed alignment of wellness and Employee Assistance Program (EAP) services for the clients she has served. She combines fourteen years of EAP experience with a background in Human Resources, coaching and wellness program operations.
Stephanie is a Duquesne University graduate with a Bachelor of Science in Organization Behavior and Leadership, she holds a certificate in Human Resources Management from Robert Morris University and holds a number of wellness certifications, including a Holistic Fitness Specialist and Lifestyle Wellness Coaching certification from NETA and Certified Corporate Wellness Coach (CCWC) from The Spencer Institute. Stephanie has conducted hundreds of speaking engagements and presently serves as the Director of Wellness for AllOne Health.
Michele Harbaugh has been a human resource professional for more than 20 years and currently manages health and benefits for Yoga Joint, which operates eight yoga studios across South Florida. Michele's professional dream is for employees to see human resources as a tool for them, not the dreaded "principal's office". She does this through actively engaging the team, having open and honest conversations, and interpreting policies into everyday language. She is on a mission to put the human back in human resources, help employees thrive at their workplace, and contribute to the company's overall growth.
Dr. Dave Rengachary is Senior Vice President and Head of Underwriting for U.S. Mortality Markets at RGA Reinsurance Company, where he has served instrumental roles in setting the risk philosophy for the department, oversight of US Manual development, leadership roles across numerous USMM underwriting initiatives and regulatory engagements. He previously served as Chief Medical Director for RGA
Prior to joining RGA in 2013, he was a general neurologist in practice at Missouri Baptist Medical Center where he also served as medical director for their Primary Stroke Center. Dr. Rengachary attended the Honors Program in Medical Education at Northwestern University. He then completed an adult neurology residency at Washington University followed by a fellowship in Clinical Neurophysiology. He serves on the board of directors of Memory Home Care Solutions and Oasis, non-profit organizations respectively dedicated to Alzheimer's caregiver support and healthy aging. He has obtained board certification in neurology, insurance medicine, FALU, and FLMI. Dr. Rengachary recently received his executive M.B.A. through the program at the Olin Business School at Washington University.
In 2021 Dr. Rengachary accepted a position as chair of ACLI's Risk Classification Committee. He is Past-President of the Midwestern Medical Directors Association; current Deputy Director of the Longer Life Foundation; Medical Consultant for the Academy of Life Underwriting; and a past member
The legislation would override Mnuchin and the IRS, who have blocked businesses from writing off rent, utilities and other business expenses paid for with tax-free money. The agency says the Tax Code prohibits that sort of doubling up of tax benefits.
Lawmakers from both parties, including the top-ranking Democrats and Republicans on both the House and Senate tax committees, said they intended for business owners to qualify for those write-offs when they created PPP loans. The IRS said the law didn’t specify that. Congress could pass the new legislation as soon as Monday.
The provision amounts to a huge win for small business owners, with some firms potentially ending up with a negative tax rate on their PPP money — meaning the tax benefits outweigh the amount of the loan. For business owners paying the top tax rate, it generally means they can save as much as $37 on their taxes for every $100 of tax-free PPP money they received.
Second round
The $2.3 trillion bill providing COVID-19 relief and government funding for the fiscal year into 2021 includes $284 billion in additional funding for PPP loans, which were designed to limit a wave of small-business failures that could cripple the economy. The plan lets some businesses apply for a second round of funding if they can show losses during the pandemic. Deductions are allowed on second-round loans as well.
Kevin Kuhlman, vice president of federal government relations at the National Federation of Independent Businesses, said the move by Congress to make the break explicit will help PPP recipients cope with “significant cash flow problems” when tax filings are due in April.
Many small business owners may by then be scrambling to establish reopening plans as the COVID-19 vaccine distribution expands. Trying to determine what can and cannot be deducted from income with regard to PPP loans is “the last thing they need,” Kuhlman said.
Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, said that the IRS made the right policy decision, and that Congress is off base. It makes “no sense” to allow a deduction for a reimbursed expense, because the business ends up in a better position tax-wise than if it had never incurred the cost, he said.
‘Huge giveaway’
Allowing the deduction is a “huge giveaway to the richest Americans and there is no one pushing back on this — it’s really quite absurd,” he said. He calculated about $120 billion in extra tax write-offs.
That amount isn’t reflected in the COVID-19 relief and U.S. government funding legislation currently under consideration. That’s because, for budget counting purposes, it’s considered to be a fix to old legislation, rather than the establishment of a new tax break.
Rosenthal said there are some sympathetic cases of small businesses, but the best way to help them is through more direct aid, rather than an “artificial incentive through an extra deduction.”
Tax consultants said the move will help clients stay in business.
Brian Newman, a partner and practice leader of CohnReznick’s Federal Tax Services, said those include a restaurant-equipment manufacturer. Without PPP money, many “may have either been shut down for a period of time, or shut down completely,” he said.
For small farmers in Iowa that Kent Vickre, state coordinator for the Iowa Farm Business Association works with, the provision will help lower their tax liability.
“Every dollar helps. I think people with adjusted cash flow, this would be a wonderful, wonderful gift,” Vickre said.