Paycheck Protection Program – Income Tax Treatment Clarified

Slowly the details of the Paycheck Protection Program (PPP) Loan program are coming into focus. The most recent clarification has come from the Internal Revenue Service in IRS Notice 2020-32. The IRS stated eligible expenses the business incurs in the 8 week “covered period” (i.e., those expenses that qualify for PPP loan forgiveness) will not be deductible as 2020 business expenses.

This notice clarifies income tax consequences of the PPP not previously addressed in the CARES Act, or in the ensuing Interim Final Rules or FAQs.

The ruling states:

(a) If the SBA forgives the loan because you paid payroll, mortgages, rent and utilities during the 8 weeks following receipt of the loan proceeds and meet other payroll thresholds then…


(b) the forgiveness will not be taxed as income and


(c) the qualifying expenses paid will not be deductible for tax purposes.

In the IRS’ interpretation, this avoids a “double tax benefit” which would result from a loan which is forgiven and is not taxable while still receiving a deduction for the related expenses.

Read More on the CARES Act

We suggest you contact your DHJJ CPA to review this latest information to see the effects on your business. We are still awaiting guidance from the Treasury/SBA on the loan forgiveness calculations.

DHJJ will continue to provide updates and assistance as details continue to evolve. If you have any questions, or need help with your business, payroll, or individual needs, please contact your DHJJ CPA or reach out to us on our online chat feature at dhjj.com.

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