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IRS Issues Additional Guidance on PPP Loan Expenses Deductibility

IRS Issues Additional Guidance on PPP Loan Expenses Deductibility

In November 2020, the U.S. Treasury Department and IRS released guidance that clarified the tax treatment of Paycheck Protection Program (PPP) loan expenses. Here’s what HR teams and small businesses need to know about this latest update.


Refresher: What is the PPP?

Passed in March 2020, the Paycheck Protection Program (PPP) is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The federal loan program was designed to help struggling small businesses that were impacted by the COVID-19 pandemic. 

The PPP issued Small Business Administration (SBA) loans from the beginning of the national emergency until August 2020. Combined, Congress set aside $669 billion in forgivable loans for applicable American companies. 

One of the key promises in the PPP was that the SBA would forgive loans “if all employee retention criteria are met, and the funds are used for eligible expenses.” In June 2020, President Trump signed the Paycheck Protection Program Flexibility Act (PPPFA), which made several adjustments to the PPP, namely to ease certain restrictions and help more companies qualify for forgiveness.


How Does the New Ruling Apply to PPP Funds?

In a press release issued in November 2020, the U.S. Treasury Department and IRS clarified the tax treatment for expenses businesses incur with PPP loans that have not yet been forgiven. 

The announcement stated that for applicable businesses, these expenses are not deductible if the business reasonably believes the PPP loan will be forgiven in the future. This applies to PPP loans that were issued in 2020 but have yet to be forgiven by the end of the year even if the business hasn’t yet filed for forgiveness. The same release encouraged these businesses to file for forgiveness as soon as possible. 

With this in mind, the announcement confirmed that if a PPP loan is expected to be forgiven and is not, applicable expenses can be deducted. Read the full ruling here.


What Else Should Employers Know?

As employers and HR teams prepare for the end of the year and 2021, countless businesses likely have a key question in mind: When can we safely return to normal?

U.S. pharmaceutical companies have made promising strides in the development of coronavirus vaccines and may begin shipping doses to high-risk populations as soon as mid- to late-December 2020. However, for most American employers outside the healthcare and home care industries, employees won’t have access to the vaccine until well into 2021.

Aside from COVID-19, employers should use the following HR calendar to properly prepare for 2021, including key tax and reporting dates as well as federal holidays. Additionally, HR teams should consider company culture trends and fast-growing benefits trends to watch in the new year—both of which can help build and sustain a strong workforce.New call-to-action

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