Tell Congress: Small Business
Relief Dollars Should Not be Taxed

When COVID-19 hit, Congress wanted to keep employees on the payroll rather than in the unemployment line. Now the IRS states businesses who paid employees with Paycheck Protection Program dollars will have to pay taxes on that money unless Congress acts.

Understanding the dire situation that many businesses and their employees were facing during the pandemic, Congress passed the Paycheck Protection Program (PPP) as part of the CARES Act to give businesses a lifeline. The primary goal of the PPP was to keep employees on the payroll rather than in the unemployment line. 

While the intent of Congress was clearly to make these loans completely forgivable and tax-free, it seems that the Internal Revenue Service (IRS) did not get the memo. IRS Notice 2020-32 states that “no deduction is allowed under the Internal Revenue Code…if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the [CARES Act].”

Let us simplify that statement: if a business took a PPP loan and paid their employees with it, the business now owes tax on that money.

By disallowing the deduction for the expenses covered by PPP dollars, small businesses’ 2020 federal tax bills could increase substantially. This directly undermines the intent of Congress by transforming what was meant to be a tax-free, forgivable loan into taxable income.

And what does this mean for taxes businesses pay in Iowa? Iowa’s Department of Revenue has stated, “Iowa generally conforms with tax provisions of the CARES Act to the extent they affect Iowa income taxes for tax years beginning on or after January 1, 2020.” Iowa will follow suit with wherever the federal government lands on PPP.

Congress can and must act quickly to clarify its intent and override this IRS ruling.

2020 has already been tough for small businesses, and without action, this tax season could bring even more uncertainty and pain for struggling small businesses. It is imperative Congress act to ensure that these jobs and businesses are safe from this tax hurdle. 

Now is the Time to Take Action!

ITR has contacted Iowa's federal delegation about this critical issue and now we invite you to make your voice heard, too.
Use the button below to email
Senator Grassley, Senator Ernst, and your U.S. Representative:

Email Your Senators and U.S. Representative

Strong Economic Growth Should Lead to Tax Cuts

The Governor and legislature should confidently seize the opportunity to further boost Iowa’s economy and put money back in the pockets of Iowa taxpayers.
Last week, the Iowa Revenue Estimating Conference (REC) projected the number of tax dollars pouring into the state's coffers will continue to increase for the next fiscal year (FY 2022). The estimate predicts Iowa will collect $8.266 billion, an increase of $296.4 million over the current fiscal year (FY 2021) estimate.

The Des Moines Register reported:
Republicans, who control the Iowa House, Senate and governor’s office, say they are confident in their financial management of the state. Last year's budget ended with a $305.5 million surplus and cash reserves of $770 million. They say Iowa is in a better position than many other states to weather the pandemic.
ITR Vice President Chris Hagenow said, "The estimate shows the resiliency of Iowa’s Economy during the COVID-19 pandemic. While other states make dramatic budget cuts, the leadership of the Governor and legislature have put our state in an enviable fiscal position."

In 2018, the Iowa Legislature took on significant tax reform for the first time in decades. The bill was a good first step; however, much of the tax relief in that legislation was subject to revenue triggers that must be met before lower rates are enacted. These revenue triggers create a high bar that makes it uncertain when, or if, Iowans will see the final reduced rates promised by the legislation.

Understandably, triggers were used to protect Iowa’s budget from unpredictable revenue levels in the future and to ensure the state’s continued financial stability. The future, though, is here, and Iowa’s financial picture is promising. We now know that Iowa can responsibly have these new rates take effect. While Iowa’s tax picture has improved, so, too, has our state’s financial situation.

Hagenow added, "Strong economic growth coupled with spending discipline provides an excellent foundation for the legislature to move forward with additional tax relief. The Governor and legislature should confidently seize the opportunity to further boost Iowa’s economy and put money back in the pockets of Iowa taxpayers."

During the upcoming legislative session, policymakers need to remove the revenue triggers, deliver the promised tax cuts, and look for additional ways to cut taxes.

ITR in the news:
Iowa Republicans hope to cut taxes even as they assess COVID-19 budget damage
- Ames Tribune
Iowa panel bumps up state revenue expectations
- CR Gazette

Group Pushes for Tax Cuts with Iowa’s Projected Revenue Growth
- The Iowa Torch

Iowa can responsibly have new tax rates take effect
- The Iowa Standard

Links of Interest

We agree. President Trump's executive order says states should review occupational licensing regulations so they are the, "least restrictive requirements necessary to protect consumers from significant and demonstrable harm." -
Iowa Senate President Jake Chapman wants to "stir our economy" by giving you tax cuts. - CR Gazette
Elon Musk's message for the U.S. government: “Get out of the way” and let companies innovate. - CNBC
Are all of Iowa's Medicaid recipients eligible? Nobody knows. Every dollar lost to waste, fraud, or abuse is a dollar that cannot go to fund services for those with genuine and urgent needs. - National Review
Good move Texas. Iowa needs to do the same. Lobbyists contracted by Iowa's local governments aren't subject to open record laws. If property tax dollars are paying for lobbying activities, taxpayers deserve to know exactly how that money is being used. - Forbes

Recent ITR Watchdog Email Updates

  • Des Moines Says COVID Will Cost City $25 Million in Revenue
  • Small business owners should be ‘Person of the Year’
  • Iowa and Nebraska Should Trade Playbooks
  • Is tax relief guaranteed?
  • Chris Hagenow joins ITR's staff
  • Spending restraint
  • 2020 ITR Legacy Award recipients
  • Cut the rates!
  • Lather, rinse, repeat; More reform needed
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The government keeps taking more of your money and time. 

ITR works for lower taxes, less spending, and fewer regulations
so politicians get out of your pocket and off your back.

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