Are loans from the company taxable to employees? — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

Are loans from the company taxable to employees?

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Q: HR’s latest benefit is a computer purchase program, which is an interest-free loan. The guidelines state its purpose is to encourage employees to purchase up-to-date equipment, increase their comfort level with technology and extend those educational and personal benefits to their families. Employees can borrow up to $1,500, payable over 24 months via payroll deductions. We’re concerned with two aspects of this program:

   (1) must we limit it to employees and

   (2) should the foregone interest be included in employees’ income?

A: Provided the loans stay below $10,000, you need not include any foregone interest in employees’ income. How employees use their loans isn’t relevant, so employee use vs. family use isn’t an issue. However, if the company later lets an employee off the hook by forgiving a loan, the amount forgiven is taxable to the employee.

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