Some construction companies may receive large tax bills relating to Paycheck Protection Program loans, says the Internal Revenue Service. The IRS released guidance last week regarding tax implications for construction companies that plan to ask for PPP loan forgiveness, according to Construction Dive. A forgiven PPP loan is tax-exempt, but actually using the loan can reduce how much a company can write off on business taxes. And a loan is only forgivable if borrowers use a minimum of 60% for payroll costs and 40% for other costs such as rent and utilities.
Joseph Natarelli, leader of the national Construction Industry Practice group at accounting firm Marcum, told Construction Dive that many of his clients are considering not applying for PPP forgiveness in order to avoid a hefty tax bill.
“They’re saying, ‘If I knew then what I know now, then I wouldn't have taken the loan and I would have had to lay people off,’” he said.
The bottom line for contractors, Natarelli said, is to check with their accountants about tax implications before applying for loan forgiveness.