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.
Jennifer Jones, MSM RD, is an experienced healthcare professional with a background in clinical dietetics, wellness programming, and employer health. With over 15 years of experience, she has worked in various settings, including healthcare systems, occupational health organizations and health providers, and a welfare benefits advisory firm.
After working directly with patients and employees, Jennifer turned her focus to population and employer health to achieve a greater impact on health outcomes at Springbuk where she serves as the Sr. Director of Health Strategy Services.
Mike Nicholas is CEO of the Bond Market Association, formerly the Bond Dealers of America, the only DC based trade association representing securities dealers and banks focused on the U.S. fixed income markets.� Mike is a graduate of The University of Memphis and has completed graduate work at Duke University.� Mike lives in Vienna, VA with his wife and three children.
Jennifer Bright is executive director for the Innovation and Value Initiative (IVI), a non-profit working to advance the science and improve the practice of value assessment in healthcare.
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.