Are PPP loans taxable?

Last year’s Payment Protection loans were a big help to many businesses around the country, helping them stay afloat during the pandemic. But the loans came with a number of catches, including ever-changing and confusing rules about how they could be used, whether they would be forgiven in full, and any tax implications.

A PPP loan can be forgiven if at least 60 percent of it is used for employee payroll costs. The loan forgiveness application is submitted to the lender that granted the loan, which can be a confusing process all by itself.

However, if you made it through the forgiveness process, what next? Is the forgiven PPP loan considered taxable income?

No. When Congress passed the CRRSAA law in December 2020, it classified a forgiven PPP loan as tax-exempt.

Additionally, expenses paid with PPP loans can be claimed as deductions. In other words, the portion of the loan that was used for other, approved expenses under the terms of the loan — things like rent, utilities, mortgage interest, personal protective equipment, and the like — can be written off.

This is a reversal of the original instruction from the IRS and the Treasury Department, according to the U.S. Chamber of Commerce. The decision came after some businesses anticipated higher taxable revenue in 2020, due to not being able to write off as many expenses.

As with any other significant financial business matter, consult a tax professional when filing your taxes. Last year was a doozy with more moving parts than usual, and you will want a pro to decipher it.