Editor’s note, Jan. 11: The IRS has reversed its position on “double dipping” in accordance with the economic relief law enacted in late December. See IRS Reversal: Expenses Paid With PPP Loan Funds Are Now Tax-Deductible
There’s a new wrinkle introduced by the IRS for the Payroll Protection Program that advisors and their clients taking these loans should be aware of.
If their PPP loans are forgiven, which is a benefit of the program, those businesses will not also be able to claim the usual business tax deductions for wages, rents and other expenses, according to new guidance from the IRS.
“This treatment prevents double tax benefits,” according to the IRS notice, noting that its stance “is consistent with prior guidance” of the agency.
PPP loans are designed to help small businesses (with no more than 500 employees) retain employees by paying eight weeks of payroll costs, excluding salaries above $100,000. If businesses use 75% of loan proceeds for payroll purposes, retain their full-time employee headcount and don’t cut salaries for any employee earning less than $100,000 by more than 25%, their loans can be forgiven. If they rehire recent laid-off employees by June 30, they can also qualify for loan forgiveness.
Businesses that have their loans forgiven under the program don’t have to pay taxes on the forgiven loan amount.