Loans to Employees – Interest Rates

Written by Briana Cavanaugh

November 5, 2010

Loans to employees happen. People fall short, they move, have an emergency, or a baby, crash their car, etc. Everyone falls short sometimes, no matter how much they plan. It’s just part of life.

In researching interest rates for employee loans I came across some helpful (to me) information. I started out on >a href=”http://tax.wustl.edu/GENERAL/Pages/LoanstoEmployees.aspx”>this site</a> which helped me start my search. Sometimes just knowing the right search term makes all the difference.

Then I went about finding information about whehter or not this loan is a “below market rate” loan. So I found <a href=”http://www.irs.gov/publications/p550/ch01.html#en_US_publink10009882″> this section of the IRS website</a>. One of the things I learned was the if the loan is under $10,000 you’re probably ok. Unless you’re trying to avoid taxes – that’s never a good idea.

Once you know that, you can go to the <a href=”http://www.irs.gov/app/picklist/list/federalRates.html”>”Index of Applicable Federal Rates”</a> to find your number.

You should also know that you must document this kind of thing (like everything in accounting) with why the loan with taken and how and when the loan is to be re-paid.

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