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Q: Corporate taxes + paying off employee student loan ( Answered,   0 Comments )
Subject: Corporate taxes + paying off employee student loan
Category: Business and Money > Accounting
Asked by: ykjk-ga
List Price: $20.00
Posted: 28 Jul 2005 22:52 PDT
Expires: 27 Aug 2005 22:52 PDT
Question ID: 549278
I am a doctor.  I own a private practice that is incorporated.  I am
an employee of that corporation.  Can my corporation pay for my
medical school student loan and receive a tax deduction for it?  i.e.,
is it advantageous for my corporation to pay for the student loan
rather than out of my personal post-tax salary dollars?  My accountant
said no, but it seems to me like it should be somehow possible.  I've
heard of corporations assuming ones student loan as a signing bonus or
benefit for signing up with them.
Subject: Re: Corporate taxes + paying off employee student loan
Answered By: richard-ga on 29 Jul 2005 09:25 PDT
Hello and thank you for your question.

Unfortunately your accountant is correct - - the loan payments made by
your corporation are taxable income to you. (Your coporation does get
to deduct the payment as compensation paid which reduces your
corporation's taxable income, so at least there's no double tax.)

You are right to compare the situation to a physician hired by an
unrelated company on those terms, but in those circumstance likewise
the loan payment must count as part of the employee's income.

The issue is reviewed in considerable detail in IRS Publication 970
(chpater 5, page 32)

Only the NHSC Loan Repayment Program, etc. can make such payments tax-free:
"Education loan repayment assistance. Beginning in 2004, education
loan repayments made to you by the National Health Service Corps Loan
Repayment Program (NHSC Loan Repayment Program) or a state education
loan repayment program eligible for funds under the Public Health
Service Act are not taxable if you agree to provide primary health
services in health professional shortage areas."

Here's an article that discusses your issue in some detail.  The
article is ambitiously titled "Medical Student Loans--Making
Repayments Tax Free" but if you read it you'll see the title promises
more than the article delivers.  [Note the last two paragraphs, which
imply that the IRS has not been very good at spotting the issue.]

But since you'll need to have your corporation deduct the loan
payment, your CPA is correct - - the price of the employer deduction
is income to the employee.

Search terms used:
"Employer-Provided Educational Assistance"
"student loan repayment" employer "medical school"

Thanks again for bringing us your question.
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