Employer payment of employee student loan

[craigba33]

HI,



I am looking for some help regarding structuring repayment of a student loan. My daughter has been fortunate enough to find an employer that will pay off her student loans. Is there a way to structure the loan or forgiveness of debt to her that will avoid her paying the tax burden on it?



Any help would be greatly appreciated.



Thanks!



Craig

[Bees Knees]

Unfortunately, no there isn’t.

The tax code says all compensation paid to employees is taxable, except for specific exceptions listed in the code. To avoid tax, the fringe benefit must be listed in the code.

There is no code section listing payment of student loans as a tax free fringe benefit. The only benefit that is close would be the Educational Assistance Program under Section 127 where the employer pays the cost of books, equipment, fees, supplies, and tuition. The problem you have is these expenses were incurred prior to employment, thus, nullifying the tax free fringe benefit.

[jimmcg]

As to the structuring of the loan repayment by the employer see if it makes tax and economic sense to spread out the repayment over a number of years and thus avoid a onetime high incremental tax bracket. However see if the employer has a written policy reagarding this; what you want to avoid is a situation where the employee has a "right to repayment" and thus constructive receipt.

[Lion]

Employer repays loans

If daughter just got a job, maybe starting 1 October or later, then 2007 might be a very low income year for her. Maybe just bite the bullet and take the monies offered by her employer up front to pay off her loans now. Especially if her personal living expenses will be low this year, maybe living with parents while looking for an apartment, etc. You'll have to run the numbers both ways or multiple ways, with a lump sum from her employer now vs. over different numbers of years with her base salary increasing. For instance, I'm in CT where recent college grads usually take those signing bonuses, etc., early while still living with parents and wait until next year to move into NYC apartment and corresponding NYC and NYS resident tax rates.