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March 7, 2021

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In Our View: Making PPP loans tax-free should be a priority

The Columbian
Published:

In the early days of the coronavirus pandemic, the Paycheck Protection Program was a blessing for small and mid-sized companies throughout the country. But that blessing could turn out to be a bit of a curse without action from Congress.

Last month, the Internal Revenue Service ruled businesses will have to pay taxes on that government aid. The result could be an unwelcome surprise for many companies and an additional burden atop the economic stress created by the pandemic.

“Regrettably, Treasury has now doubled down on its position in new guidance that increases the tax burden on small businesses by accelerating their tax liability, all at a time when many businesses continue to struggle and some are again beginning to close,” Sen. Ron Wyden, D-Ore., wrote recently in a joint statement with Sen. Chuck Grassley, R-Iowa. “Small businesses need help maintaining their cash flow, not more strains on it.”

The Paycheck Protection Program helped keep many businesses — including The Columbian — afloat through the initial government-mandated shutdowns. It offered loans to companies with fewer than 500 employees, allowing them to pay workers for up to eight weeks. If an employer can show they had spent at least 60 percent of the funds on meeting payroll, the loans are forgiven.

Typically, when a loan is forgiven, it becomes taxable income in the eyes of the IRS. But the CARES Act, which included the Paycheck Protection Program, explicitly exempts PPP money from that interpretation — or so it was thought. That means the recent ruling likely will come as a surprise to proprietors who believed they were receiving a tax-free lifeline.

Congress is working on a much-needed solution to the capricious decision, perhaps as part of a bill to avoid a government shutdown or as part of an additional COVID-19 relief package. With so much work to be completed before the end of the year, we hope that clarification on the tax ruling does not get lost in the shuffle of negotiations.

Meanwhile, Rep. Jaime Herrera Beutler, R-Battle Ground, stresses that $135 billion of the $650 billion paycheck program was not spent before the deadline passed. She is urging an extension to that deadline: “We don’t have to spend new money. It’s there. All we have to do is change the dates to allow those loans to be accessed. That’s it. And the reason that this hasn’t moved is because it’s a political football.”

Congress and the Trump administration must stop playing games with the livelihoods of business owners and their employees and must ensure that much-needed assistance is accessible. As of September, more than 12 million Americans were counted as unemployed — a number that does include those who are not actively looking for work.

According to Herrera Beutler, the Paycheck Protection Program helped preserve 95,000 jobs in Southwest Washington’s 3rd Congressional District. They were part of the more than 700,000 businesses nationally that received aid with the understanding that the loan would be forgiven and would be tax-free.

Much like the public health crisis that was fostered by the coronavirus, the economic crisis will not magically disappear with the distribution of vaccines. The strain will linger for months or years, and assistance now must be viewed as an investment that will prevent greater stresses in the future.

That creates complex problems for lawmakers to address. Making PPP loans tax-free should be a priority.

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