Do you have an SBA Loan?  Did the SBA make payments for you for six months this year?  If yes, the Small Business Administration (SBA) recently issued SBA Information Notice, Control No. 5000-20067, regarding the tax reporting for the SBA payments made on the borrower’s behalf.   Under the CARES Act, the government provided six months of payments towards principal and interest payments for some SBA loans.  The CARES Act did not give any explicit guidelines as to whether these payments would (or would not) be taxable income to the recipient, which is distinctly different from the wording used in the CARES Act about the PPP debt not being subject to tax.

Therefore, the SBA has confirmed it will be issuing Form 1099-MISC in early 2021 to those borrowers who received six months of loan payments covered by the government.  The total amount of the payments must be reported as income to the borrower, including principal payments.  The borrower would also claim a deduction for the interest paid on the business’ behalf since the borrower would be reporting the government payments as income.   Please provide any 1099-MISC received from the government for this program with your tax return paperwork.

The SBA further clarifies that the six months of payments are not considered Cancellation of Debt since the lender did not cancel the SBA Loan, but rather the government stepped in to make the payments for six months.

If you have additional questions about this, please contact your tax advisor for further discussion.

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