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COVID-19 Update - Employee Assistance Through Interest-Free Loans

COVID-19 Update - Employee Assistance Through Interest-Free Loans

Mar 23, 2020
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As we explore ways to manage through these difficult economic times, employers who are looking for ways to assist employees who have seen their compensation reduced or former employees whose jobs have been temporarily eliminated due to the impact of the coronavirus quarantine may want to consider making interest-free loans available to those employees as a way to assist them economically during this difficult period. 

The Tax Code permits an employer to make an interest-free loan to an employee of up to $10,000 without having to treat the foregone interest as compensation to the employee.  In addition, if the employee currently has received a loan in excess of $10,000 from his or her employer, such as in the case of a bank employee who has a mortgage loan with his or her employer, the employer can still make an additional loan to that employee so long as the rate of interest is at least equal to minimum rate established under the provisions of the Tax Code.   For short-term loans (less than 3 years) originated in March 2020, the loan must provide for a rate of interest of 1.5% per annum.  The interest rate for short-term loans made in April 2020 is even lower, 0.91%.  Both rates are significantly lower than commercial loan rates that might otherwise be available to employees looking for ways to manage through these difficult economic times.  

We are happy to answer questions employers may have regarding the below-market loan rules or explore other tax issues they may have during this period.

Related Practice Areas

  • Tax & Private Client

  • Employment & Labor

  • Corporate

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This material is not comprehensive, is for informational purposes only, and is not legal advice. Your use or receipt of this material does not create an attorney-client relationship between us. If you require legal advice, you should consult an attorney regarding your particular circumstances. The choice of a lawyer is an important decision and should not be based solely upon advertisements. This material may be “Attorney Advertising” under the ethics and professional rules of certain jurisdictions. For advertising purposes, St. Louis, Missouri, is designated BCLP’s principal office and Kathrine Dixon (kathrine.dixon@bclplaw.com) as the responsible attorney.