A $250,000 'forgivable' employer loan breaks down to just $25,000 a year and can come with a hefty tax bill Christy Bieber Wed, July 1, 2026 at 5:00 AM PDT 5 min read shutterstock.com When an employee leaves a business, the company pays for the departure. In fact, the Society for Human Resource Management (SHRM) (1) estimates that the costs of replacing a worker can range between 50% and 200% of the employee's salary. This includes direct and indirect costs like severance pay, recruitment, onboarding, training, lost productivity and temporary staffing. In light of this high price, it's not surprising that some companies take creative approaches to try to deter top performers from leaving. For example, some businesses may even offer forgivable loans (2) to attract and keep talent. But how exactly do these work and are they a good idea for employees to accept? Must Read Jeff Bezos backs a platform that lets anyone invest in rental homes for as little as $100 6 ways to build wealth like a landlord without actually being one Robert Kiyosaki says this 1 asset will surge 400% in a year and begs investors not to miss this 'explosion' Millionaires under 43 hold only 25% of their wealth in stocks. Here's where their money is actually going Let's pretend we have a worker named Liam whose company sent him a promissory note for a $250,000 forgivable loan. It is a 10-year loan at 4.87% interest, but for each year that Liam stays with the company, a portion is forgiven. The balance is wiped clean after a decade. If Liam leaves early, he must repay the remaining amount due. While this seems like a great deal, there are both tax and career implications to consider. Forgivable loans have big tax consequences The first key thing Liam needs to know is that, even if the loan does end up forgiven in full by his employer, it's not really free to Liam because, depending how it is structured, it could come with a huge tax bill. "If the paperwork for the $250,000 loan is not done properly and the money is just given to you for staying at the company the IRS can consider the whole $250,000 as compensation in the first year," explained George Dimov (3), CPA and founder and CEO of Dimov Tax, to Moneywise. "This means you have to pay taxes on the $250,000 loan right away." In this case, Liam's company did do the paperwork right, with an official promissory note and a stated interest charged. But that doesn't mean Liam just avoids any obligations to the IRS. "The forgiven part of the $250,000 loan is taxed as wages for that year (4)," Dimov said. "You also have to pay payroll taxes on the forgiven part of the $250,000 loan. This all goes on your W-2." So, if Liam accepts the money, he must plan to cover the taxes due on the forgiven debt. Of course, the problem is that he's received...
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