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.
Brooke Ybarra is senior vice president for Innovation and Strategy at the American Bankers Association.
Dana Edwards is focused on designing and developing digital products for the US and UK Simply Business businesses. He has a track record of running product, technology, and data teams using the latest customer-centric, agile practices.
His passion is helping engineers, business teams, product teams, data teams, and enterprises work in a way that produces high quality products for customers. This drives him to create an environment of empowerment and inclusivity.
Dana joined Simply Business in 2022 with an extensive background in financial services. Previously, he held roles as Chief Technology Officer for firms such as PNC Financial Services and MUFG Union Bank. His career started with roles in product and technology development, and academics
Sam Rea is the chief technology officer at Aspire General Insurance, bringing over 20 years of experience leading IT organizations in the insurance industry. Prior to joining Aspire, he served as CTO for the PEAK6 InsurTech portfolio, overseeing technology across an agency franchise, MGA, SaaS platform, BPO service, and a national flood insurance processor. He previously held senior roles at National General Insurance as EVP and CIO, and at Zurich Insurance as assistant vice president.
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.