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.
Nazeefa Ahmed is a reporting associate for National Mortgage News through the Dow Jones News Fund.
- Awards — Nazeefa was formerly a South Asian Journalist's Association Scholarship recipient.
- Education — She is currently a business reporting student at the Craig Newmark Graduate School of Journalism and holds a degree in natural sciences from the University of Calgary.
- Experience — Nazeefa has previously covered housing for the Invisible Hand and as well as academic research for Science Magazine.
Kevin is an insurance industry and insurtech executive. He was the Founder/CEO of the first DSS app for healthcare and voluntary insurance benefits. He is an Innovator, Team Builder & Scaler
Sanjay Chojar is Senior Vice President and Chief Information Officer at the Amalgamated Family of Companies, overseeing all strategic technology decisions, including systems architecture, cybersecurity, and infrastructure. He brings more than 30 years of experience as a global technology leader across major financial services institutions, driving digital transformation and the application of advanced technologies such as AI, machine learning, and cloud services.
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.