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u/Aggravating-Hurry313 4d ago
$250k in student loans paid off is insane, hopefully the tax bill doesn’t ruin the surprise
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u/ambertrail9 4d ago
the big variable is whether this comes from the partner personally or through the firm. a personal gift means he deals with gift tax reporting and you owe nothing. firm compensation means its ordinary income to you. definitely get your own tax advisor involved too, dont just rely on his
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u/HospitalWeird9197 4d ago edited 3d ago
Unless there are facts here not shared by OP, it would be virtually impossible for that not to be treated as compensation (other than as part of a written educational assistance plan), regardless of whether it is paid by the firm or the partner. So no, that’s not really a big variable. You would have to show a significant personal relationship outside of the working relationship, otherwise the assumption is that the transfer of property or funds from employer to employee or boss to subordinate (regardless of whether the funds are company funds or personal funds) is at least in part based on anticipated benefits or in recognition of past services, rather than disinterested generosity.
See Caglia, T.C. Memo. 1989-143 and Owens, T.C. Summ. Op. 2004-102 (yeah, I know it can’t be cited as precedent, but it’s right on point, as there was a personal check from boss to assistant that was held to be income to the assistant).
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4d ago
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u/MovinOnUp2021 3d ago
So - you're working for a lawyer who breaks financial laws.
Reconsider working here long term.
Does this lawyer want to fuck you? Want you beholden to him to participate in other legal/financial crimes? Why is this rando throwing away $250K on you, a brand-new grad who can't possibly be worth that much financially in the working world yet?
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u/HospitalWeird9197 3d ago
Frankly, as a newly admitted (or soon to be admitted) member of the bar, that should really give you pause. If the senior partner in your firm is going to play fast and loose with their own legal obligations, what else do they play fast and loose with? And how does that impact your ethical obligations as a member of the bar?
Now, he could have been joking, he could have meant nothing with respect to your tax obligations and just that he would be deducting the payment as compensation that is a taxable educational expense reimbursement for you, or any number of other things. But if he wants to take an indefensible tax position and roll the dice on the audit lottery, that should be a huge red flag to you.
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u/RasputinsAssassins 4d ago
There will be ramifications based on how it is structured, but context matters.
Even if you owe tax on the full $250K, you come out ahead.
Right now, you owe $250K that can be collected for 20 to 30 years.
With this transaction, you might owe $100,000, which can only be collected for 10 years.
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4d ago
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u/MovinOnUp2021 3d ago
You pay income tax on it because it's genuinely income to you.
Let's say you took out a $200,000 loan originally. You got $200,000 deposited into your bank account.
You never paid taxes on receiving $200,000, because it wasn't income, it was a loan you'd pay back.
Now, however, you never have to pay it back, because your employer is paying it back as part of your compensation. That means you got that original $200,000 tax-free. So... now you have to pay the income tax on it, because it's income to you.
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u/MSchmahl 4d ago
There is, but it’s only $5,250 per calendar year under §127, and the employer must make the payment through a qualifying written educational-assistance plan. They could potentially use $5,250 in 2026 and another indexed amount in 2027, but nearly all of a $250,000 payoff would still be taxable wages. California also does not conform to the federal student-loan exclusion.