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If the SBA Makes Loan Payments on Your Behalf, Are You Taxed?

February 15, 2021

Don’t miss my new article!

As you probably know, the Small Business Administration (SBA) established programs designed to provide cash infusions to businesses affected by the COVID-19 pandemic.

I’m talking about…

  • The Paycheck Protection Program
  • Economic Injury Disaster Loans (EIDLs)

But did you know that the SBA established several other loan programs that pre-date the pandemic and don’t require you be in the midst of a disaster to qualify.

These include…

  • 7(a) loans. General small business loans of up to $5 million
  • 504 loans. Loans of up to $5.5 million to provide financing for major fixed assets like equipment or real estate
  • Microloans. Short-term loans of up to $50,000 for small businesses

The good news is that the CARES Act, as modified by the new December 27th law…

Requires the SBA to make certain
loan payments on your behalf!

This raises an important question, which my new article answers.

Do you have to pay taxes on these SBA payments?

The CARES Act was silent about whether the loan payments made by Uncle Sam are taxable or not.

But then the SBA weighed in and ruled that the payments were taxable and had be reported as income to the IRS on Form 1099-MISC. Ouch!

But hang on!
Lawmakers came to the rescue and overruled the SBA.

That’s right. The second stimulus bill, enacted on December 27, 2020, amended the CARES Act to provide that:

  • The SBA’s payments of principal, interest, and fees on behalf of the borrower on these SBA loans are not taxable income to the borrower.
  • The expenses paid by the borrower, with subsidized SBA loan proceeds, are fully deductible.

Yes. There was a happy ending to this story, but there are many technical issues that you have to understand if you want to come out a winner.

That’s why I urge you to act now and…

Read my new article…

If the SBA Makes Loan Payments on Your Behalf, Are You Taxed?

Filed Under: Filing tips, Interest, Legislation, Tax Planning

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