Employers who have their Paycheck Protection Program (PPP) loans forgiven are ineligible for tax deductions on expenses paid for through the loan, the IRS recently announced.
In Notice 2020-32 issued April 30, the IRS stated that related expenses from the loan forgiveness are not deductible. As a result, the PPP debt forgiveness is not taxable, but the expenses incurred in the payroll, rent, interest and utilities are not deductible. The forgiven loans won’t be taxed, and the ruling is based on the premise that deductions typically aren’t allowed on exempt income.
PPP loans are largely expected to go toward payroll expenses (75%), but the remaining 25% can help pay for rent, mortgage interest, utilities and interest on other debt obligations.