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Rep. Courtney Notifies Chambers of Commerce that Forgiven PPP Loans to Small Businesses Are Not Taxable Income

May 5, 2020
Press Release

NORWICH, CT – Today, Congressman Joe Courtney (CT-02) released a letter that he wrote to several eastern Connecticut chambers of commerce to provide clarification for small businesses on the federal tax impact of a forgiven Paycheck Protection Program (PPP) loan. In a video conference held yesterday between Courtney and representatives from Norwich, Eastern, and Mystic Chambers, questions were asked about whether forgiven PPP assistance would be deemed as income, and therefore subject to federal income tax by the IRS.

Courtney’s letter clarifies that the forgiven amount of a small business’s PPP loan “shall be excluded from gross income,” and not subject to income tax. However, Courtney also notes that the most recent guidance issued by the IRS does not preserve certain other tax deductions for those who would be receiving a forgiven PPP loan. Rep. Courtney goes on to state that he will continue to work with House Ways and Means Committee Chairman Richie Neal (MA-01) and his other colleagues to ensure that employers who receive forgiven PPP loans are still able to take advantage of other tax deductions during the COVID-19 pandemic.

In his letter, Courtney wrote:

“It was a pleasure to speak with you and your members during yesterday’s Zoom video call. Our Chambers of Commerce in Connecticut are a vital resource […] and your feedback from what your members are witnessing on the ground is essential as Congress continues to develop a fourth bipartisan COVID-19 response package.

“I wanted to provide an update to a question that was asked yesterday regarding the tax impact of a forgiven Paycheck Protection Program (PPP) loan. Specifically, the question (which was a good one) on whether the amounts of loan forgiveness under PPP will be treated as taxable income for the 2020 tax year. After the call, Meghan O’Sullivan located recently published guidance from the IRS that clearly states that any forgiven amount of a PPP loan “shall be excluded from gross income”, per Section 1106(i) of the CARES Act. As the IRS stipulates in their guidance, Subsection 1106(i) provides that:

‘any amount that (but for that subsection) would be includible in gross income of the recipient by reason of forgiveness described in section 1106(b) ‘shall be excluded from gross income.’’

“This obviously will provide some relief for members with that concern. However, IRS guidance goes on to note that the CARES Act does not preserve certain tax deductions for small businesses’ overhead costs for those who would be receiving the forgiven PPP loan. I am attaching the IRS publication on this topic to this correspondence.

“Please be advised that my staff and I have been in touch with Members from the House Ways and Means Committee, which has jurisdiction over tax issues, on the tax implications of PPP forgiveness. I will be working closely with my colleagues who serve on the House Ways and Means Committee, including Chairman Neal, to ensure that an employer receiving a forgiven PPP loan can still take advantage of the tax deductions necessary to ensure that their business survives this challenging time.”

To read a copy of the final letter, click here.