IRS Announces Forgiven PPP Funds Are Taxable Income

On November 18, 2020 the IRS announced that taxpayers who received a Paycheck Protection Program (PPP) loan may not deduct the expenses paid with PPP funds if the taxpayer receives forgiveness or expects to receive forgiveness in 2020 or 2021.

This means most PPP recipients will pay tax on their 2020 tax returns on the PPP funds received.

If Congress takes action to change this, which is not a certainty, such action is most likely to happen after January 20, 2021, in the midst of the tax filing season and potentially after some taxpayers have already filed their 2020 tax returns (March 15 for S Corporations and multi-member LLCs and partnerships and April 15 for single-member LLC’s and C Corporations).

Source: IRS Revenue Ruling 2020-27
rr-20-27.pdf (irs.gov)