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Taxation of PPP Loan Funds

With the entire country facing historic economic and social challenges, how small businesses will endure these obstacles must be carefully considered.  That is one of the many reasons why the United States government passed the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act on March 27, 2020. This act provided $2 trillion in economic relief towards Americans with over $500 billion going towards the Paycheck Protection Program (PPP).  This program is managed by the U.S. Small Business Administration and dedicated to providing funds to small businesses to cover payroll, employee benefits, and overhead costs during these unprecedented times. 

However, when any new major law is implemented there will always be some confusion about it and the CARES Act is no exception.  This sense of uncertainty has been made worse by the fact that the rules and criteria governing PPP loans have constantly been changed and modified, such as when the Paycheck Protection Program Flexibility Act was passed.  One of the biggest sources of continued incertitude comes from a lack of clarity in what is tax-deductible with PPP loans. That’s why we have created this simple guide to explain what is deductible and what is not regarding PPP loans.

In layman terms, a PPP loan can be fully tax-exempt if all qualifications needed for forgiveness status are met.  Be aware that with how the law is currently written, you cannot take a business deduction on your tax return for the expenses paid for by the PPP loan. This could change with a revision to the law.

Criteria Needed for Full Forgiven Status

Note that there are many nuances to the above points so even if someone doesn’t qualify for full forgiveness, partial forgiveness can still be achieved.

As of July 1, 2020, the United States Senate requested an extension of the PPP deadline to August 8, 2020. The program was positioned to stop taking applications on June 30, 2020, with more than $130 billion left unfunded to small businesses. To date, more than $500 billion has been distributed to 4.8 million businesses.

PPP loans can be an incredible resource to help small businesses that are suffering from the effects of Covid-19.  Barnard, Vogler, and Co., is aware that it can be a lifeline for the livelihoods of many Americans.  We are also aware that the laws and regulations regarding PPP loans are complex and sometimes difficult to understand.  Please contact us here if you need more information about PPP loans: http://bvcocpas.com/contact-us/

Works Cited

Arvedlund, E. (2020, June 8). Congress updates PPP loan rules, making them more business-friendly. https://www.inquirer.com. https://www.inquirer.com/news/ppp-ppfa-congress-trump-coronavirus-loans-small-business-administration-sba-20200608.html.

The CARES Act Provides Assistance to Small Businesses. U.S. Department of the Treasury. (2020, June 16). https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses.

The CARES Act Works for All Americans. U.S. Department of the Treasury. (2020, June 16). https://home.treasury.gov/policy-issues/cares.

Hare, N. (2020, June 25). SBA Issues New PPP Loan Guidance: What You Need To Know And FAQs. https://www.forbes.com/sites/allbusiness/2020/06/25/sba-issues-new-ppp-loan-guidance/.

Ludwig, S. (2020, May 21). Tax Implications of PPP Loans. https://www.uschamber.com/co. https://www.uschamber.com/co/run/finance/tax-implications-of-paycheck-protection-loans.

Paycheck Protection Program. U.S. Small Business Administration. https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program.






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