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Old 10-23-2015, 03:06 PM
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Employer paying on student loans

First off I know when employer's pay on student loans it is taxable income. So that's not at all what this question is about.

My employer promised $10,000 towards student loans for each year employed. I recently have reached one year of employment.

My employer's wants to send the GROSS $10k and then tax my income throughout the next year. This is not beneficial to me first because it will lower my take home pay but it actually shows as a increase in total income. The increase in total income potentially will raise my student loan income based payments.

After research on the IRS website I see that the appropriate way is to tax the amount the flat 25% with the additional 7.blahblah% and then send the net to the loan servicer. My employer however does not seem to want to do this. This benefits me because my take home pay is not lowered and it does not affect my income based payments since it can be considered a one time bonus. I realize it's less money towards my loans but I'm currently set up with PYE and don't plan to "pay off" my loans, there is forgiveness after 20 years. (and yes I know the forgiven amount is subject to taxes as well).

Please advise on if I'm correct in my research, is what my employer is trying right or acceptable?

Thanks!



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Old 10-24-2015, 03:10 AM
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First off I know when employer's pay on student loans it is taxable income. So that's not at all what this question is about.=====>>Correct; that's merely considered your taxable salary, with attendant withholding of payroll taxes.

My employer promised $10,000 towards student loans for each year employed. I recently have reached one year of employment.
My employer's wants to send the GROSS $10k and then tax my income throughout the next year. This is not beneficial to me first because it will lower my take home pay but it actually shows as a increase in total income. ====>Correct; but this method will give you higher take home pay due to lower tax withheld from the bonus;as your ER adds the bonus payment to the most recent regular income payment, he needs to determine the standard withholding based on tax tables and the sum of the two payments, he needs to subtract the amount already withheld from the most recent regular income payment, and withhold the rest from the bonus.

The increase in total income potentially will raise my student loan income based payments. ===>>Correct; your bonus increases your MAGI for your student loan; however, UNLESS Your MAGI is higher than a specified amount which is set annually, You can claim the deduction
Student loan repayment benefits are subject to employment taxes.


After research on the IRS website I see that the appropriate way is to tax the amount the flat 25% with the additional 7.blahblah% and then send the net to the loan servicer. My employer however does not seem to want to do this.=======>Whatever reporting method your ER chooses, the result is still same in figuring your MAGI for student loan interest deduction. current profit sharing is not for you UNLESS your ER sets aside a predetermined amount, usually between 2.5 and 7.5 % of payroll but sometimes as high as 15 %, as a bonus on top of base salary. Such bonuses depend on company profits, either the entire company's profitability or from a given line of business. Sometimes the bonuses are given across the board, and sometimes they are given in larger percentages of compensation the more someone makes. Your ER may withhold a flat 25% for federal income taxes from the bonus payment and then this method ‘d reduce your take home pay due to higher tax withheld from your bonus OR your ER ALSO may add the bonus payment to the most recent regular income payment, determine the standard withholding based on tax tables and the sum of the two payments, subtract the amount already withheld from the most recent regular income payment, and withhold the rest from the bonus. This method gives you higher take pay as said above.

This benefits me because my take home pay is not lowered and it does not affect my income based payments since it can be considered a one time bonus. I realize it's less money towards my loans but I'm currently set up with PYE and don't plan to "pay off" my loans, there is forgiveness after 20 years. (and yes I know the forgiven amount is subject to taxes as well).=====>I guess you get confused between the flat 25% withholding method and the method adding the bonus and reg wages for the most recent payroll period.

Please advise on if I'm correct in my research, is what my employer is trying right or acceptable?=======>Needless to say, it is up to your ER.Your ERcan choose between two methods of withholding federal taxes from bonus or supplemental income; Aslongas your ER adds the bonus and reg wages for the most recent payroll period , then tax to be withheld from the bonus is much lower than the tax withheld directly on bonus.

In general, your ER can write these payments off as a legitimate business expense of his company, but you must report the payments as part of your income, similar to a bonusas Student loan interest is normally deductible, but the actual principal payment is going to be taxed. so, you can claim a personal deduction for any portion of interest that was due on the student loans on your 1040.



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Old 10-24-2015, 07:03 PM
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I'm already in the 25% tax bracket, that's why I didn't figure it would save me any money to combine the two.

additionally I want to reiterate what they are trying to do. They said they'd pay $10,000. they want to send the entire $10,000 directly to my loan servicer. and then since it is subject to taxes take the taxes out of my earned income over the next year. They do not want to tax it initially and send the net. both methods we discussed involve taxing up front and sending the NET to the loan servicer not the full $10k is this not correct?



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Old 10-25-2015, 03:47 AM
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Originally Posted by Alspa14 View Post
I'm already in the 25% tax bracket, that's why I didn't figure it would save me any money to combine the two.

additionally I want to reiterate what they are trying to do. They said they'd pay $10,000. they want to send the entire $10,000 directly to my loan servicer. and then since it is subject to taxes take the taxes out of my earned income over the next year. They do not want to tax it initially and send the net. both methods we discussed involve taxing up front and sending the NET to the loan servicer not the full $10k is this not correct?
I'm already in the 25% tax bracket, that's why I didn't figure it would save me any money to combine the two. ==.basically, regardless of your marginal tax rate, your ER may choose one of the two methods as said previously, and to save you any money( I guess you mean to pay less tax, you may talk to yur ER to add the bonus payment to the most recent regular income payment, determine the standard withholding based on tax tables and the sum of the two payments, subtract the amount already withheld from the most recent regular income payment, and withhold the rest from the bonus. This method gives you higher take pay as said previously. However you can not, aslong as your receive the bonus, avoid reporting the bonus money on your W2 , as part of your gross income.

additionally I want to reiterate what they are trying to do. They said they'd pay $10,000. they want to send the entire $10,000 directly to my loan servicer. and then since it is subject to taxes take the taxes out of my earned income over the next year. They do not want to tax it initially and send the net. ========>>>>>>>>> I am not sure what they do however, asyou know, the bonus is reported for the year in which it is PAID. If your ER promises you the bonus next year, you won't have to report it until next year on your return;your ER can withhold income tax from any bonus. Any withholding will be based on a form W-4 which you filled out, showing exemptions and other information. The amount withheld will be included in Box 2, federal income tax withheld. It will be included with withholding from wages or other compensation and not reported separately.


both methods we discussed involve taxing up front and sending the NET to the loan servicer ========>>Correct as said previously ; they are typical methods being applied by an ER. Any bonus payments from your ER are included in your W2.There's no separation of bonus income from other types of taxable wages. The ER adds it to this total and enters it on Box 1 of the form . Or , if your ER meets certain conditions, they are allowed to withhold at a flat rate of 25%; If you receive a separate bonus check, your ERcan choose to withhold a flat 25 % if your supplemental wages,i.e., your bonus, will total less than $1 M for the year. The IRS does not allow any other percentage. If your ER expects that your supplementary wages will total more than $1M, they must withhold 35 % of your bonus pay or use the highest tax bracket you fall into for the year to calculate your withholding. While it might seem that you will pay less if your ER uses the aggregate method and computes the tax based on your W-4 information, that is not always the case. For example,assume that if you are married and file jointly with your spouse, claim 2 withholding allowances on your W-4 and make $52K per year paid in weekly installments, the federal taxes on a $5K bonus will be $1,348 using the aggregate method. If your ER used the flat-tax method, your federal taxes would be $1,250.

. . . not the full $10k is this not correct?========>>I am NOT quite sure of the method; however, you are not subject to double taxation . You may contact the loan servicer for more accurate info.



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