US Lawmakers Aim To Fix PPP Loophole That Could Cost SMBs Billions

Paycheck Protection Program

Lawmakers want to fix a mix-up in the economic relief CARES Act laws from March that could cost small businesses $120 billion in taxes, The Wall Street Journal (WSJ) reports.

Congressional members from both parties said businesses taking loans from the Paycheck Protection Program (PPP) should be allowed to deduct related expenses, like payroll, from taxes.

That provision is not in the current Republican draft for the next proposal. That could leave millions of small businesses without a lifeline for their next tax returns. Treasury Secretary Steven Mnuchin was opposed to the deductions, according to a source WSJ spoke with. The Treasury Department’s position is that allowing deductions could serve as a kind of double benefit, allowing businesses to claim deductions and get tax-free income.

The issue comes from how the CARES Act was originally constructed, allowing for the PPP loans to be forgiven so long as businesses use them mostly for paying employees, with the forgiven loans not counting as taxable income. But the law doesn’t specify if ordinary tax deductions for the same expenses are allowed — though in late April, the Treasury Department and IRS determined that the businesses couldn’t also take deductions due to tax laws prohibiting double benefits.

In May, the House passed a bill that would allow for the deductions, with support from numerous lawmakers including Oregon Democrat Ron Wyden and Texas Republican John Cornyn, and the backing of the National Federation of Independent Businesses. All were disappointed to see the idea absent from the GOP bill.

The deductions, according to analysts, could help businesses use current losses against income from years past in order to claim refunds.

WSJ interviewed Mike McKenny, president of Kansas-based insurance claims firm Assured Vehicle Protection Inc., which only has 15 employees. He said the lack of deductions would make his PPP loan “a little kick in the gut after you had a swift pat on the back.”


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