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.
Jackson Fregeau is the CEO and co-founder of Quandri, the AI platform for insurance operations, serving hundreds of brokerages and agencies across North America. He co-founded the company in 2021 with his brother after seeing firsthand how the data-intensive, manual work embedded in agency operations was defining the ceiling on what the industry could deliver. Quandri pairs broker expertise with insurance-native AI speed and intelligence to create a new operating model that increases capacity, strengthens client relationships, and enables teams to operate more efficiently at scale.
Ed McFadden is the senior vice president for communications at the American Financial Services Association.
Kara Clark, FSA, is a Senior Research Actuary at the Society of Actuaries Research Institute, focusing on mortality and longevity and their implications for the life insurance industry.
She brings over three decades of actuarial and leadership experience across consulting, industry, and professional organizations. Most recently, she was a Partner at Oliver Wyman, advising on risk modeling, value-based care, and health strategy, informing her perspective on healthcare drivers of mortality.
Her work emphasizes practical, research-based insights for actuaries and industry leaders. She holds an MBA from Northwestern University and a BA in Economics from the University of Illinois Urbana-Champaign.
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.