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.
Democrats on the House Ways and Means Oversight Subcommittee want the agency to reverse the automated revocation of status for tens of thousands of nonprofits.
Misty Guinn is the director of benefits and wellness at Benefitfocus, where she analyzes health claims data, industry trends, and works closely with suppliers, carriers, and consultants to create and manage innovative health plan strategies for Benefitfocus associates. Misty is dedicated to helping others improve their total well-being through education, culture, relationships, and a supportive environment that embraces all the different pillars of well-being, including physical, mental/emotional, financial, social, and purpose. When creating employee benefits, communications strategies, and creative well-being engagement programs, Misty applies a consumer-centric design to help foster the foundations of a healthier workforce community.
Banks have managed to steer around trouble spots in energy, hotel and mall-related credits. But fears of further deterioration, an eviction wave or more job losses are keeping lenders circumspect.
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.