Small Businesses could Face Higher Taxes Because of PPP Loans

Small business owners across Wisconsin and the country may be forced to pay higher taxes after receiving money from the federal Paycheck Protection Program (PPP), adding to their costs at a time when many have seen their revenue crushed by the COVID-19 pandemic.

But in mid-November, the U.S. Treasury Department and the IRS said if a business paid for expenses with money from a PPP loan that has been or will be forgiven, businesses cannot deduct those expenses from their taxes — deductions that would otherwise be routine in past years.

Without being able to deduct those expenses, many small businesses will be faced with a higher tax bill, a reality Republicans and Democrats in Congress say is not what lawmakers intended when they created the program.

In a joint statement on November 19, U.S. Sens. Chuck Grassley, R-Iowa, chair of the Senate Finance Committee, and Ron Wyden, D-Oregon, ranking member of the committee, urged the Treasury Department to reconsider the ruling, saying the department along with the IRS was ignoring the intent of Congress.

“Since the CARES Act, we’ve stressed that our intent was for small businesses receiving Paycheck Protection Program loans to receive the benefit of their deductions for ordinary and necessary business expenses,” Grassley and Wyden wrote. “Regrettably, Treasury has now doubled down on its position in new guidance that increases the tax burden on small businesses by accelerating their tax liability, all at a time when many businesses continue to struggle and some are again beginning to close. Small businesses need help maintaining their cash flow, not more strains on it.”

On December 3, hundreds of national trade groups like the Associated General Contractors of America and the National Beer Wholesalers Association sent a letter to leadership in Congress urging them to pass legislation before the end of the year to correct what they called “an avoidable catastrophe for millions of small businesses.”

“The effect of this (IRS) ruling is to transform tax-free loan forgiveness into taxable income, raising the specter of a surprise tax increase of up to 37 percent on small businesses when they file their taxes for 2020,” the letter said.