Taxability of Paycheck Protection Program Loan Forgiveness

May 4, 2020 at 3:00 pm |

Late last week, the Internal Revenue Service issued guidance related to tax treatment of loan forgiveness pertaining to forgiveness achieved under the guidelines of the Paycheck Protection Program (PPP).

Under the CARES Act passed by Congress, PPP loan forgiveness was not to be counted as taxable income. However, the IRS said in its guidance that expenses that qualify for and result in PPP loan forgiveness are NOT tax deductible, to prevent a double tax benefit. In effect, this results in loan forgiveness being taxable.

Congress could override the IRS’s stance with a further clarification of the CARES Act, but given present guidance, PPP loan proceeds used for payroll and other eligible expenses that lead to loan forgiveness will result in these expenses being nondeductible for federal tax purposes.