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Posted

If an employee goes on leave and is receiving third party payments such as third party sick pay or short term disability, can his/her 401k loan repayments still be suspended for up to a year under the unpaid leave exception? The employee is not receiving any payments from the employer - the third party sick pay is not paid directly by the employer but still shows up on the W2 from the employer. Since the employer is not actually paying the money (it's paid on their behalf) and cannot withhold from the payments, does this count as unpaid leave?

Posted

Jackie, probably because the STD is showing up on the W-2 from employer, the third party payer of the sick pay is treated for tax purposes as the employer's agent. See IRS Notice 2015-6. So my guess would be, no suspension if the amount of the STD after withheld taxes is at least as much as the loan repayment amount. But I don't know of any guidance precisely on point.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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