The Internal Revenue Service issued a new ruling last week to clarify that small businesses receiving Paycheck Protection Program loans in 2020 may still deduct their payroll and other normal business expenses, even if the expenses were covered by a forgivable loan.
The IRS’ new guidance repealed its interpretation from May 2020 that disallowed the deductions. Its new rule was forced by an act of Congress in the December stimulus bill, where Congress reiterated that it did not intend for PPP loans to be taxed.
Brett Wesner, National Newspaper Association chair, said the new guidance would remove a threat to small business viability created by IRS last year.
“Many Members of Congress were irritated by Treasury Department’s refusal to change its policy, even though the law under the original CARES Act clearly prohibited a tax on the PPP funds,” Wesner said. “It is too bad that it took until the end of the year to fix the problem because many small businesses have overpaid their quarterly taxes and will now have to wait to get that money back. But Congress did finally straighten it out and NNA is grateful that a number of members of Congress, including Senators John Thune, R-South Dakota; Charles Grassley, R-Iowa; John Cornyn, R-Texas; Ron Wyden, D-Oregon; and Tom Carper, D-Delaware, got out in front of this problem early last summer and stuck with the repeal until it got done.”
A copy of the new ruling can be found at: https://www.nna.org/pub/doc/final-IRS-guidance-1.7.21.pdf
