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.
Alex Reddish is chief commercial officer of Tribe Payments.
Stuart Winchester is the founder & CEO of Marble. Founded in 2020, Marble is a one-hub, digital wallet that allows members to shop, compare, explore, pay, and - for the first time ever - earn rewards on their insurance premium payments. Prior to Marble, Stuart worked as the General Manager, Insurance Product at Better.com. Before Better.com, Stuart led General Assembly's flagship New York campus where he oversaw one of the largest technical and design communities in the city.
Danny Estrada, MBA, is the director of enterprise solutions at Introhive. He focuses on helping organizations realize their growth and sales goals through leveraging AI and relationship intelligence. He has over 20 years of experience as a CRM practitioner and management consultant focused on the deployment and adoption of CRM platforms.
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.