May 08, 2020

Legislation to clarify PPP tax deductions introduced in Senate

domeA bipartisan group of senators Wednesday introduced legislation – the Small Business Expense Protection Act – that would clarify small businesses can deduct eligible expenses that were paid for by forgivable paycheck protection program (PPP) loans from their taxes.

PPP loans, created by the Cares Act, are intended to be used by small businesses to cover payroll costs and other employee benefits, as well as some facility and operational costs – many of which are usually tax deductible. PPP borrowers can apply for forgiveness in an amount equal to the sum of these costs during the eight-week period from loan origination.

However, the IRS last week released a notice stating that businesses that receive a loan through the program cannot deduct otherwise tax-deductible expenses if the payment of the expense results in forgiveness of a covered PPP loan. The IRS notice references a section of the Internal Revenue Code that prevents double tax benefits. 

If passed, the proposed legislation, introduced by Sens. Chuck Grassley, R-Iowa, Marco Rubio, R-Fla., Ron Wyden, D-Ore., John Cornyn, R-Texas, and Tom Carper, D-Del., would make clear that businesses can deduct items such as wages and rent that were paid by with PPP loan funds and invalidate the IRS notice. A similar bill has been introduced in the House by Rep. Lizzie Fletcher, D-Texas.

NAFCU is actively engaged on Capitol Hill as lawmakers continue to discuss potential additional funding for the PPP and other changes. The association also has a frequently updated FAQ document on the program, designed to keep credit unions up to date on the latest information, and a free webinar, available on-demand, to help credit unions better understand the process for offering loans.