WASHINGTON—Congress may be poised to deliver a tax benefit worth hundreds of billions of dollars to business owners who took Paycheck Protection Program loans.
The provision, part of the discussions over the year-end coronavirus relief bill, would ensure that PPP recipients can deduct the payroll costs and other expenses covered by forgiven loans, even though the loans themselves are tax-free income. The move would reverse a Treasury Department ruling that denied the deductions.
Lawmakers say they just want to clarify what Congress intended to do when it created the PPP and prevent unexpected tax bills from hitting business owners. Still, a full deduction could reduce federal revenue by about $200 billion, with a majority going to very high-income households, according to Adam Looney of the Brookings Institution, who is a former Obama administration official.
There is bipartisan agreement in Congress to overturn the Treasury decision that denied deductions and frustrated business owners. Some progressive groups and Treasury Secretary Steven Mnuchin argued that the combination of tax-free income and deductible expenses amounted to double dipping, but the lobbying clout of business groups and senior lawmakers in both parties is countering that view.