DALLAS (CBSDFW.COM) - Many small business may be forced to pay taxes on government loans designed to help them during the pandemic.
While loans from the Payment Protection Program are tax-free, a new IRS ruling states businesses cannot deduct expenses paid with money from a PPP loan.
This new ruling could saddle businesses that were counting on these deductions with a much larger tax bill than initially expected.
"That's not what (the government) said back in late March when these businesses took out the loans," said accountant Glen Birnbaum, a partner at Sikich LLP. "They are moving the goal posts."
Under the new ruling, businesses that typically deduct payroll and rent expenses on their taxes will not be able to do so for expenses paid for by PPP loan money.
This could cause a business' taxable income to appear higher on paper.
Tax experts say for a business that took out a $1 million PPP loan, without the deductibility it could owe $300,000 to $400,000 more in taxes.
Birnbaum said many businesses may not even be aware of this potential tax bill.
"Employers and businesses are fatigued because there is just a constant stream of guidance from the IRS and who's keeping up with all of it," he said.
Members of Congress on both sides have pushed for a bill that would allowed small businesses to deduct costs covered by PPP loan funds.
Congress could vote on the proposed bill in December.
Due to the uncertainty in their tax bill, economists say some businesses may hold off on hiring as well as giving employee's raises or end of the year bonuses until they have a better understanding of their tax situation.
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