When the CARES Act established the Paycheck Protection Program (PPP) loan program, many businesses were left wondering: (1) are loan amounts forgiven considered taxable income; and (2) can a business deduct payroll and similar expenses that are also forgiven under the PPP loan? The IRS answered both of these items in the negative late this week.
Specifically, the IRS clarified that PPP loan amounts that are forgiven will not be considered taxable income to the business. However, expenses that the PPP loan is spent on (such as payroll, interest, etc…) will not be deductible on the business’s tax return if they are forgiven. This is to prevent the business from benefiting twice from these expenses, once via forgiveness and once via reduction in taxable income from deductions. Businesses should note that expenses paid for by the PPP loan but not eligible for forgiveness likely will be deductible, as will payroll and other expenses not paid for by the PPP loan amounts that were forgiven.
Virtus Law, PLLC continues to monitor developments in this (and other COVID-19 areas) and will continue to post relevant updates to this website.