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.
Mike Hicks is chief marketing officer at Beezy.
Heath Shackleford is the founder of Good.Must.Grow. a socially responsible marketing consultancy and Certified B Corp. He is a two-decade veteran of the wellness industry and a social entrepreneur who has led national research on conscious consumerism and purpose-driven behaviors. Over the course of his career, he has worked with leaders in healthcare, nonprofits and socially conscious businesses to innovate for a better world. He is also a frequent contributor to Fast Company and active with a variety of charitable causes, ranging from addiction to homelessness to social justice.
Sara Martin is CEO of WELCOA. Her purpose is helping people fulfill their highest potential in work and life through corporate health promotion. She has launched award winning wellness programs, created new wellness products, and engineered work environments to create cultures of health across multiple industries. She has been a session and keynote speaker at a variety of community and national events including National Health Enhancement Research Organization (HERO) Conference, the Art and Science of Health Promotion Conference, and the National WELCOA Training Summit. She sits on the Johns Hopkins Mental Health in the Workplace Advisory Council and the CDC Workplace Health Resource Center Steering Committee.
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.