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.
The Internal Revenue Service reminded taxpayers Thursday that they only have until Nov. 21 at 3 p.m. Eastern Time to register for an Economic Impact Payment of $1,200 or more.
Shannon Schuyler is PwC’s U.S. chief purpose & inclusion officer, a role that brings together unique insights and perspectives from her prior roles as chief purpose officer and responsible business leader to the chief diversity officer role. With the responsibility for activating PwC's purpose — to build trust in society and solve important problems — and furthering diversity, inclusion and equity across the firm’s workforce, she helps create an environment that celebrates identity and intersectionality as a way to drive innovation and business value. Outside PwC’s walls, she focuses on the role PwC plays in communities and to provide opportunities for partners and staff to use their skills to respond to systemic challenges that have created disparities across society.
The guidance clears up the tax treatment of expenses when a loan from the Paycheck Protection Program hasn’t been forgiven by the end of the year.
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.