Employee Loan

[Guest pentex]

We are thinking of giving an employee an interest free loan, for $12,000, to be repaid over a period of 3 -5 years (not sure yet). Does anyone know what the taxable consequences to this employee would be, i.e. as a fringe benefit, etc.?

[Steve72]

I believe that any loan from an employer to an employee for less than the Federal rate results in taxable income to the employee in the amount of the Federal rate interest minus the actual interest.

Therefore in this case, the income would be equal to the Federal rate on the loan.

(Later modification, after I actually read the Code)

If the aggregate loan amount outstanding between the employer and the employee is l$10,000 or less, the above does not seem to apply (unless the loan has a principal purpose of tax avoidance).

[Guest pentex]

Thanks a lot, Steve72!! Do you know the Code this refers from? Thanks again!

[Steve72]

Internal Revenue Code Section 7872 generally.