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What’s the catch with the PPP loan (Paycheck Protection Program)?

If something seems too good to be true, it probably is.

The Paycheck Protection Program Loan (PPP) is one of many relief programs implemented this spring to help businesses stay afloat during these unprecedented times. With the attractive promise of loan forgiveness for any amount used for qualifying expenses, such as payroll and rent, small business owners and sole proprietors took out PPP loans in droves this spring.

Who wouldn’t sign up for free money?!

Not so fast!

With minimal regulations and guidance in place to properly implement and regulate the stimulus package, people were left struggling to figure out who qualified for what programs and what restrictions would apply for loan forgiveness. Consequently, we are seeing frequent updates to guidelines of programs that were implemented in March — the PPP being one them.

As many were prematurely celebrating the idea of “free money,” the IRS released a notice at the end of April that may have come as a surprise to many: If your PPP loan is forgiven, you cannot write off the business expenses on your taxes that were paid using money from the PPP loan. 

To put this into perspective, let’s say you received a $100,000 PPP loan to cover 8 weeks’ worth of payroll, utilities, and rent. Because you used the loan to pay for these qualifying expenses, it may be forgiven. That $100,000 that is forgiven CANNOT be taken as a business expense tax deduction for 2020 to reduce your taxable income.

In short, if you received the PPP loan and used the funds to pay for wages, health insurance, rent, utilities, etc., then you will not be allowed to deduct those expenses on your business’ taxes because the loans are forgiven, assuming you qualify for forgiveness. You cannot double dip and get loan forgiveness plus a tax write off simultaneously. You can read more about it in IRS Notice 2020-32.

There is no doubt that the PPP loan has helped business owners stay on their feet and support their employees during this difficult time, but it is unfortunate that this program, along with many others, were not executed with more clear-cut guidelines to the public.


Receiving economic assistance in the form of the PPP loan and expecting to receive an additional tax break on that money is what the IRS views as double dipping. In other words, the IRS wants you to know that you can’t have your cake and eat it too.

Check out our regularly updated COVID-19 resource page on our website to stay on top of the changing rules and regulations in the stimulus package and how it affects you.

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