Guest Post: If my employer pays my student loans directly, is that tax free to me?

Guest Post by Cory Lee, CPA, CVA, of Silverman, Kaplan & Sakwa, CPA’s PC:

Client Question: If my employer pays my student loans directly, is that tax free to me?

If it sounds too good to be true, it usually is.  In general, whether your employer pays you directly or makes a payment on your behalf, that payment will be considered taxable income to you, and will need to be included on your annual income tax return in some form or another.  How they pay this will define where it belongs on your annual income tax return.

However, there are some specific exceptions to this rule.  Per the IRS website, there are three specific exceptions as follows:

“Student loan repayments made to you are tax free if you received them for any of the following:

  1. The National Health Service Corps (NHSC) Loan Repayment Program (NHSC Loan Repayment Program).

 

  1. A state education loan repayment program eligible for funds under the Public Health Service Act.

 

  1. Any other state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health services in underserved or health professional shortage areas (as determined by such state). “

It is important to keep in mind that you will need to maintain documentation of the payments made under any of these repayment programs, and that you complete the appropriate income tax forms detailing why the payments are not included in your taxable income.

Please contact your tax professional if you have any further questions.

 

Cory Lee, CPA, CVA, of Silverman Kaplan & Sakwa, CPA’s PC, specializes in serving clients in sectors such as medical practices, real estate, and closely held businesses. Additionally, he provides tax research and advice to clients and oversees the preparation of business valuations, as well as individual, partnership and corporate income tax returns.  Cory is a Michigan State University graduate and holds an MBA as well as a Master’s of Finance from Walsh CollegeFor more information or assistance, please contact Cory Lee at 248-358-4121, cory@skspc.net, or visit www.skspc.net.

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