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.
With the world gripped in panic over the rapid spread of the coronavirus — and the stock market falling in response — payments companies have been left to speculate on what it all means to their operations in an increasingly global economy.
In his role as chief medical officer, Dr. David Gregg oversees StayWell’s population health management programs, leveraging behavioral science as the foundation for helping clients – corporate enterprises and health systems – drive lasting change that improves health outcomes. StayWell illuminates the path to better health through innovative health management solutions, patient education, and health services and support. Through the science of behavior change, the company’s solutions help people live better, healthier lives.
Employers should outline policies about teleworking, travel and sick leave and monitor recommendations from the CDC and health officials.
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.