Have you seen your position sited in code ?  I would love to have it printed out to show clients who freak out when we finish their tax return.    I agree that is the only entry you can make without other guidance that it is expressly non taxable.  Another COVID item that is nice but will not be fun to explain to clients this year.  

has the treatment of this changed with the new act that was signed into law in December?  PPP loans are now tax deductible 

I appreciate you for taking the time to post a question in the Community space, @jdolan14.

Let me put you on the right track. I recommend checking our Microsite page for the latest information about PPP loans in QuickBooks.

If you wish to get in touch with our PPP support team, go to the PPP Center of your product and select Live Chat.

Let me also add this link that provides detailed guidelines on how to record bank loans in QuickBooks Online (QBO): Set up a loan in QuickBooks Online.

If there’s anything else you need assistance with your account, you can always get back to me in this thread. I’ll be around to help and assist you. Have a good one and keep safe!

At least until other guidance is given by SBA/IRS, count on the six payments made as taxable income.  Here's quick article from FinancialAdvisors.com that explains a bit about how the SBA treats other loans and, by extension, these payments.  There is a quick summary all the way at the bottom. 

This is how I entered this into QB:

• Created a bank account in QB called “SBA Loan Payments”
• Created an income account called “Grants”
• For each month I deposited the amount SBA paid on my behalf into the “SBA Loan Payment” account then used this to record a “payment” on the loan with the interest/principle amounts shown on my statement.

There’s probably a slicker way to do this, but it gets it on the books as income and doesn’t affect my other accounts!

Look at sba.gov/funding-programs/loans/coronavirus-relief-options/SBA-Debt-Relief

This will lead you to Information Notice:

5000-20087 (1/28/21)

5000-20086 (1/27/21)

That should substantiate.

Adjust your SBA loan to the amortization schedule they provided or will provide. Debit Loan.

Record Interest as if you had made the payments. Debit expense.

I recorded the fees as outlined in the AM Schedule.  Debit expense.

Post a capital contribution to the owners/shareholders to increase basis. Credit Equity.

You can do this every month but I just did a year end adjustment.  The only difference in making a payment and this entry is you credit equity as a capital credit rather than reducing cash.  This is supposed to increase basis just as any capital contribution does.  

You won't get crossed up because Notice 2021-06 Waved the Information reporting requirements and you won't receive a 1099 MISC reporting the loan payment as income and the 1098 should report the interest as it was scheduled in the AS .

This is all predicated by the second round of the COVID Relief legislation passed.

Easy peasy...

So no money was recieved you just did not have to make any payments. 

Dr.  Loan Payable for the principal amount. (thereby reducing your SBA Loan)

Cr. Equity.

Generally you would have credited Extinguishment of debt on the income statementdue to an extreme disaster but that would make it taxable.  Being this is a non taxble event you would credit your equity.  Also you cannot take a deduction on the interest being you did not make any interest payments.

Intermediate accounting.  Not often used.

QBO Team/ @JasroV This issue is NOT related to PPP loans so the link to the Intuit microsite is really(while a useful link for all things PPP) a dead end and fails to address the question originally posed. The question relates to the how to record the SBA-subsidized six months of principal and interest payments that were made on behalf of small businesses that had existing SBA loans (i.e., NOT PPP loans). 

Thank you for posting this!!  Much more helpful than anything from Intuit on this thread!

The URL didn't work (for me) so it is great that you included the document identifier numbers.  A Google search of "sba notice 5000-20086 (1/27/21)" did the trick! 

For others following this thread, there is another pertinent document regarding second round of payments on SBA loans See SBA CONTROL NO.: 5000-20079 (January 19, 2021) 

Hi, I am the business owner/bookkeeper, and this is a little above my experience level.  I believe I understand the concepts here, as you've referenced the info that the payments will not be counted as income, and the interest can be deducted.  But how do I execute...in the simplest possible terms?  When you say Debit loan, etc., I expect you mean in a JE.  But how exactly do I do this part:  Post a capital contribution to the owners/shareholders to increase basis? Credit equity.  

Could you give instructions "for dummies," as it were?

SBA loan payments under cares act 1112 should not be included in gross income according to the January 28 2021 SBA information notice that references section 278(c) of the COVID ACT 2020 enacted on December 27 2020 which also states no deduction should be denied by reason of the exclusion from gross income, i.e. interest expense so how do I record this payment in quickbooks? Not other income credit like I did when we thought it would be taxable income.

For us novice QB desktop users, can you please give example general journal entries we need to make?

Much appreciated, thank you.

I don't follow why our Equity account comes into play.

Seems like I could just post a JE to debit the SBA loan account holding the principle balance and credit an Other Income account that is non-taxable.  Interest is ignored, I didn't pay it.

I don't follow why our Equity account comes into play.

Seems like I could just post a JE to debit the SBA loan account holding the principle balance and credit an Other Income account that is non-taxable.  Interest is ignored, I didn't pay it.

For us novice QB desktop users, can you please give example general journal entries we need to make?

Much appreciated, thank you.

Just posting this updated information from the IRS for reference.

"

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, the SBA is authorized to pay six months of principal, interest, and fees on covered SBA loans. The Consolidated Appropriations Act, 2021, P.L. 116-260, provides that these payments are not includible in the borrower’s gross income

"

https://www.journalofaccountancy.com/news/2021/feb/irs-corrected-information-return-form-1099-misc.h...

The IRS instructed lenders that have erroneously filed or furnished Forms 1099-MISC, Miscellaneous Income, reporting certain payments on U.S. Small Business Administration (SBA) subsidized loans as income of the borrower, to file and furnish corrected Forms 1099-MISC that exclude these subsidized loan payments (Announcement 2021-2).

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, the SBA is authorized to pay six months of principal, interest, and fees on covered SBA loans. The Consolidated Appropriations Act, 2021, P.L. 116-260, provides that these payments are not includible in the borrower’s gross income. In addition, Notice 2021-6, issued Jan. 19, waived Form 1099-MISC reporting requirements for these payments.

The IRS instructed lenders that have erroneously filed or furnished Forms 1099-MISC, Miscellaneous Income, reporting certain payments on U.S. Small Business Administration (SBA) subsidized loans as income of the borrower, to file and furnish corrected Forms 1099-MISC that exclude these subsidized loan payments (Announcement 2021-2).

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, the SBA is authorized to pay six months of principal, interest, and fees on covered SBA loans. The Consolidated Appropriations Act, 2021, P.L. 116-260, provides that these payments are not includible in the borrower’s gross income. In addition, Notice 2021-6, issued Jan. 19, waived Form 1099-MISC reporting requirements for these payments.

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, the SBA is authorized to pay six months of principal, interest, and fees on covered SBA loans. The Consolidated Appropriations Act, 2021, P.L. 116-260, provides that these payments are not includible in the borrower’s gross income. In addition, Notice 2021-6, issued Jan. 19, waived Form 1099-MISC reporting requirements for these payments.

---

@shaun wrote:

Have you seen your position sited in code ?  I would love to have it printed out to show clients who freak out when we finish their tax return.    I agree that is the only entry you can make without other guidance that it is expressly non taxable.  Another COVID item that is nice but will not be fun to explain to clients this year.  

---

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, the SBA is authorized to pay six months of principal, interest, and fees on covered SBA loans. The Consolidated Appropriations Act, 2021, P.L. 116-260, provides that these payments are not includible in the borrower’s gross income. In addition. issued Jan. 19, waived Form 1099-MISC reporting requirements for these payments.

I totally agree with you. The government payment to your loan should be recorded as income. Consult with your CPA to see if that income amount will be taxable or not. 

To ALL who have this question:

1.  There was an announcement 2021-2 on 2/1/21 that states the SBA payments made on existing loans (Not PPP or EIDL) are NOT to be included in taxable income.  There is a field in the 1120S or 1065 or 1120 return to report non-taxable income from 2020 COVID relief.

2.  To record the payments-Make 6 journal entries as follows:

Principal portion-Debit the loan payable account (either short term or long term depending on how you have your loan set up on the balance sheet up); Credit a NEW GL account-Type: Other Income-NAME: Non-taxable Income-CARES Act Section 1112 SBA Payments.

Interest portion-Debit Interest Expense and Credit the same GL account above.

This will put the entire amount received in the Non-Taxable income GL so it is clear for your tax preparer and the principal portion will be relieved and you will have the interest expense in the P&L.

I will look into this and get back to you. We have the same issue.  "Free money" does not require all of the steps that the first responder responded with.

Under Section 1112 of the CARES ACT, if SBA.GOV decides to make up to 6 months (could be less time), of your qualified monthly loan payments (principal, interest, associated fees) on a qualified loan (they are not referring to the 1st or 2nd PPP Loan, nor are they referring to the EDIL Loan).

The "fact" is if your loan is chosen for 1 to 6 months of payment relief, the monies paid on your behalf are non-taxable.

"Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, the SBA is authorized to pay six months of principal, interest, and fees on covered SBA loans. The Consolidated Appropriations Act, 2021, P.L. 116-260, provides that these payments are not includible in the borrower’s gross income. In addition, Notice 2021-6, issued Jan. 19, waived Form 1099-MISC reporting requirements for these payments."

For more information:

https://www.journalofaccountancy.com/news/2021/feb/irs-corrected-information-return-form-1099-misc.h...

https://www.sba.gov/document/procedural-notice-5000-20041-further-guidance-implementation-section-11...

You would not do it the way it was explained by the previous responders!!

"Other Income"-reference is more like it. Never Cr. Equity in these types of situations (new)!  

Explanation:

Non-Taxable funds in: this is the payment made on your behalf by SBA.GOV. 

Step One:

Is set up as:

in your Chart of Accounts set up a "Other Income" account, Name it as: "SBA CARES ACT Non-Taxable Income."

Step Two has two parts, one for the Principal Amount and the second for the Interest Amount:

Part P ("P" is for Principal):

Should already be set up as either a Long-Term Loan (over 12 months to pay back P & I), or it was set up as a Current Liability (12 month or less to pay back P & I).

Your "loan" that SBA.gov is making payments toward should be the loan you already had set up in QuickBooks, which qualified under Section 1112 of the CARES ACT. You should have received a letter of acknowledgement of this from your "Lender."

Part I(Part I is for Interest Expense):

You would have an Interest Expense Account previously set up in QuickBooks.

Step Three:

The Journal Entry (J/E):

Dr.(Debit) the existing loan for the principal payment amount 

Dr. (Debit) the interest expense account for the interest payment

Cr. (Credit) the SBA CARES ACT Non-Taxable Income account.

This is the only answer that makes sense.  There is no cash transaction, only that your interest and principal were paid on your behalf and therefore the offset to your normal Principal and Interest payment is other income (P&L) instead of a credit to cash. 

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@ablee wrote:

I received the following from my auditor:

 

Normal debt payment is:

 

Debit Loan Principal

Debit Interest Expense

              Credit Cash

 

Consider you made this entry as you normally do however your credit is held in an accrued liability account instead of cash. Since this was paid for you, you would move this accrued liability credit balance down to other income.

 

The interest is essentially a wash but since it was paid on your behalf and is forgiven, you would should the gross position.

 

Correct entry is:

 

Debit accrued liability

Debit interest expense

              Credit other income

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They are wrong - DONT DO THAT -

Create a "Other Income" account name SBA Cares Act. Then reduce your SBA loan by the amount each month by using the SBA Cares Act code. This will create an area to keep track away from EIDL, PPP and CARES payroll money. Once the Government has decided what is going to be considered taxable and not taxable you will be able to fill out your tax papers properly.