Small businesses that took advantage of SBA loan payments of the principal, interest, and any other associated fees on 7(a), 504, and Microloans (“Section 1112 payments) should be informed that these payments are taxable to their business, according to the SBA Information Notice released on December 8, 2020.
7(a) loans comprise the SBA’s primary program for equipping small businesses with financial assistance.
The lender servicing the loan must issue a Form 1099-MISC on these SBA loan payments. The above mentioned Information Notice details the tax impact of relief payments and lender Form 1099 reporting requirements; key points of the Notice are summarized below.
The Notice clarifies that the total amount of the Section 1112 payments must be reported as income to the Borrower, including the principal, interest, and any fees included in Section 1112 payments.
The notice states that 7(a) lenders must issue the Form 1099-MISC for loans that haven’t been purchased by SBA, loans that have been purchased by SBA and are serviced by the 7(a), and that SBA is responsible for issuing Form 1099-MISC for 7(a) loans that have been purchased and are serviced by SBA.
Give clients a heads up before they receive an unexpected Form 1099-MISC from their bank. For more information on 7(a) loans, visit the SBA’s website. If your business needs help clarifying their financial responsibilities this upcoming tax season, contact Insogna CPA today.