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CARES Act: $5250 loan payment for self employed as well?

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  • CARES Act: $5250 loan payment for self employed as well?

    It appears the CARES act allows for up to a $5250 contribution from employer to employee for qualified educational loans. Stipulations include: payment must be made by 12/31/20, written plan needs to be in place, can’t favor highly compensated, etc.

    My question is: with income earned as an independent contractor, can $5250 be contributed from one’s self (employer) to one’s own qualified loan (employee) under this CARES act provision? If so, how do the above (and more) stipulations apply to a sole proprietor with no other employees? As the benefit is tax free (federal) to the employee and is a deduction to the employer, if possible this could be a nice benefit.

    Thoughts are appreciated. Thank you.


  • #2
    Originally posted by HenryEdwards View Post
    It appears the CARES act allows for up to a $5250 contribution from employer to employee for qualified educational loans. Stipulations include: payment must be made by 12/31/20, written plan needs to be in place, can’t favor highly compensated, etc.

    My question is: with income earned as an independent contractor, can $5250 be contributed from one’s self (employer) to one’s own qualified loan (employee) under this CARES act provision? If so, how do the above (and more) stipulations apply to a sole proprietor with no other employees? As the benefit is tax free (federal) to the employee and is a deduction to the employer, if possible this could be a nice benefit.

    Thoughts are appreciated. Thank you.
    I remember looking into this earlier. i dont believe this will apply to SP

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    • #3
      The IRS has regs specifically written for owners of businesses taking advantage of employee benefits. Very limited and very specific as to how calculated and allowed. C-corporations don’t have these restrictions but the disadvantages almost alway outweigh any benefits. We have only 2-3 c-corps physician groups and even those would like to find an out.

      SO...have not researched but I will go out on a limb and choose NO, not allowed. At least, untilspiritrider provides us with book, chapter, and verse - and his opinion rules.
      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        This is a great question and I've thought about this as well and have not found a definitive answer.

        Another option to save a little on taxes, which you may be aware of, but you can now use a 529 plan to pay back up to $10k of student loan payments. If your state allows for a 529 tax deduction, you can essentially use the 529 plan as a conduit to get the tax deduction and then reimburse yourself for the loan payments you're already making. Each state has different 529 rules, but it's worth looking into to save a little on taxes.
        Andrew Musbach, CFP® | Co-Founder & Financial Advisor at MD Wealth Management, LLC | Podcast Host - The Physician's Guide to Financial Wellness

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        • #5
          I'm seeing many online sources saying that sole proprietorships do qualify for this. Thoughts? Anyone found anything more definitive?

          https://www.lockton.com/Resource_/Pa...mbursement.pdf
          https://www.savingforcollege.com/art...-programs-lrap

          Comment


          • #6
            Originally posted by mw8mw8 View Post
            I'm seeing many online sources saying that sole proprietorships do qualify for this. Thoughts? Anyone found anything more definitive?

            https://www.lockton.com/Resource_/Pa...mbursement.pdf
            https://www.savingforcollege.com/art...-programs-lrap
            I’m pretty sure the answer is still no. These are not really ‘sources’. I have yet to see anything from IRS guidance or any other reasonably authoritative source (ie, TurboTax generally does a great job breaking things down) that would suggest SP can take advantage of this. However I hope I’m wrong.

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            • #7
              Regardless, this ended at 12/31/20 (unless extended) and is a moot point. I stand by my earlier opinion until someone can show me the IRS provision allowing it.
              Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

              Comment


              • #8
                Originally posted by jfoxcpacfp View Post
                Regardless, this ended at 12/31/20 (unless extended) and is a moot point. I stand by my earlier opinion until someone can show me the IRS provision allowing it.
                I believe the Consolidated Appropriations Act, 2021 extends through 2025. Having said that, anyone know the treatment for S Corps?

                Comment


                • #9
                  Originally posted by Sergio Estavillo View Post

                  I believe the Consolidated Appropriations Act, 2021 extends through 2025. Having said that, anyone know the treatment for S Corps?
                  Thank you, Sergio Estavillo! I would presume the 2% shareholder rule would...rule in this case. Feel free to show me a code section that permits it, though, and we’ll all learn!
                  Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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