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.
Employers should move with caution when it comes to their office safety strategy as over a third of Americans do not plan to get the COVID-19 vaccine.
Michel Vaja is payments consulting services lead at Icon Solutions.
Gary is a Principal at KPMG and leads KPMG’s Management Consulting Insurance Practice. Gary has 27 years of Financial Services experience specializing in Business and IT transformation work. Gary has split his career between Advisory Services management and the roles of CIO and CTO for large and small Insurance Carriers. He has a strong background across the full life cycle of strategy and project delivery with several $100M+ program management experience including software development, implementations and transformation initiatives. Gary’s past clients include leading entities in the financial services industry.
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.