Here’s a quick rundown of the new update for 1099-MISC; exclusion of subsidized loan payments authorized under the CARE Act.
The IRS released an advanced version of the announcement detailing the corrections to Form 1099-MISC filings. Here’s the announcement from February 2021.
The announcement details certain subsidized loan payments were erroneously reported as income of the borrowers by the lenders.
The IRS requires the lenders to correct Form 1099-MISC by excluding such payments and issue a copy of Form 1099-MISC to the borrowers. This update comes after the CARE Act 2020 overrules the inclusion of subsidized loan payments as a part of the taxpayer’s gross income.
The announcement further provides exceptions to this use case and states that “no deduction shall be denied by reason of the exclusion of the loan payments from gross income”.
The announcement reads “The CARE Act authorizes the Small Business Administrator to subsidize certain payments of principal, interest, and any associated fees owed by a borrower on certain loans.”
The provisions of the Act come into effect for all taxable years after March 27, 2020.
The February 2021 update, which no longer requires the lenders to report the subsidized loan payments, however, requires lenders to exclude such reports from their previously filed returns, and file the corrected returns.
If the lenders do not follow the prescribed corrections, the IRS may exercise its right to penalize the lenders for failure to file for willful disregard.
Further, the announcement specifies that the IRS will correspond with the borrowers should the corrected forms do not exclude subsidized loan payments and may assess the borrower for underreported income, and further follow up with the lenders if the borrowers do not receive the necessary paperwork to establish the same.
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