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.
These direct payments are intended to provide direct assistance to American taxpayers who have lost wages, jobs or opportunities because of COVID-19. But there is some fine print.
Heidi joined Arizent at the start of the COVID-19 pandemic in March 2020. Previously, she was the special editions editor at real estate trade publication The Real Deal, covering residential and commercial markets in South Florida, Los Angeles and the metro New York area. Prior to TRD, she was features editor at hyperlocal New York news site DNAInfo, where she oversaw coverage of the city's residential real estate market. With a Bachelors of Science from the College of Communication at Boston University, Heidi majored in film and later worked for celebrated cinéma vérité documentarian Frederick Wiseman. She also did stints as film editor at Metro Newspaper and UsWeekly.
Twitter: @heidipantz
Originally from Northern California, Ryan received bachelor's degrees in English and philosophy at UC Santa Barbara before beginning a career in journalism at the Santa Barbara Independent. After a few years of freelancing, bartending and snowboarding in Colorado, he moved to New York to earn a master's in journalism at Columbia University. Besides covering all things in financial advisor technology, Ryan has also written about music, sports, politics, art and entertainment.
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.