Forgivable Loan "Signing Bonuses"

[locols]

I have been offered a forgivable loan as form of signing bonus out of residency (i.e. the equivalent of 15% of one year's base salary).

Is this worth it and should I be aware of any pitfalls? And is this common?

My understanding is that I will receive an up front amount of the loan (taxable as income for this year) and that the loan will be forgiven 20%/year. After 5 years with the group, I will have nothing to pay back. If I leave early, I will be responsible for repaying the "unforgiven" percentage (such as 60% of the loan if I leave at 2 years with 3 years remaining).

Thanks in advance.

[PhysicianOnFIRE]

I had one of these once and I left 2 years into the 5 year forgiveness period.  I had to pay back 60% of the loan / signing bonus plus interest.  It was all spelled out beforehand and I knew the risks, but there is the obvious risk of owing the money upon departure if you don't stay the full 5 years.

 

[jfoxcpacfp]

locols wrote:

I have been offered a forgivable loan as form of signing bonus out of residency (i.e. the equivalent of 15% of one year’s base salary).

Is this worth it and should I be aware of any pitfalls? And is this common?

My understanding is that I will receive an up front amount of the loan (taxable as income for this year) and that the loan will be forgiven 20%/year. After 5 years with the group, I will have nothing to pay back. If I leave early, I will be responsible for repaying the “unforgiven” percentage (such as 60% of the loan if I leave at 2 years with 3 years remaining).

Thanks in advance.

Click to expand...

Couldn't tell from your post - all of the "loan" will be taxed this year? Or only 20%? Just make sure that you will owe taxes ratably over the 5 years as the loan is forgiven. And that, if you have to repay any of the loan/income, it will show as a reduction on your W2 wages. Contract should stipulate.

[locols]

Thanks for the reply both of you! To your point Johanna, the loan will indeed be completely taxed in year 1. Along those lines, my salary will only be paid for ~5-6 months this calendar year as I will be graduating residency in July. I'm going to ask them about the interest question as well when it comes time to review the contract. Great point as well about the W2 reduction wording.