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WASHINGTON — The Internal Revenue Service today announced that preparer tax identification number (PTIN) renewals for 2025 are now being processed. The nation’s more than 810,000 tax return preparers must renew their PTIN for the coming year. All current PTINs will expire on Dec. 31, 2024. https://www.irs.gov/newsroom/irs-reminds-tax-professionals-to-renew-ptins-for-2025-tax-season

Seriously, don't guess at this or make assumptions as to how this works. This is a recruiting incentive structured as a loan where it is written off at the end of a designed period if the employee stays with the company. It's an issue that the IRS has challenged because it believes that the "loan" is taxable when given as a compensatory cash advance, and the employer would get the deduction in the year the period ends (in this case, year 3). The complication is exactly how the transaction is set up that will govern when the income is reported. There is case law on this issue also, iirc one of the more recent ones being Morgan Stanley. Here is an older article from The Tax Advisor that discusses the issue and does reference a TAM, but there is more recent case law on this too: https://www.thetaxadviser.com/issues/2011/oct/clinic-story-09.html Here's a blog type article that also describes it and includes some of the advantages and disadvantages of using these employment incentives. https://keepfinancial.com/blog/employee-forgivable-loans-can-be-unforgiving-users-beware The OP should do more research and case law to understand the issue better and not rely on simple, basic answers here as to when it becomes taxable.

thanks for posting. Scenario 1 is a situation I had with a client who cuts hair--she will have no pension, just an IRA (most likely less than $50k) and Social Security. A financial advisor had told her to contribute to a Roth (probably someone who thought it was always better) and I had to explain that with only a small IRA and Social Security, she probably would not be paying taxes when she retires; and even though it didn't save her much, optimally that savings could go into the IRA. There is no one size fits all.

They got corporate protection and cheaper insurance in a corp. Most of my clients own many properties and didn't want a law suit on one to put the whoel portfolio at risk.

Here's another good one: https://www.alvarezandmarsal.com/insights/warning-employee-loans-could-have-adverse-tax-consequences#:~:text=In Technical Advice Memorandum (TAM,the loan%2C for tax purposes.

Here are some things I’ve learned over to years to consider when planning for conversion/ tax in retired years: Unless it goes to charity, someone sometime will pay tax on IRA/401K money. Unless the 85% max is reached, adding more income has the effect of increasing marginal rates by 85%. 10% becomes 18.5%, 12% becomes 22.2%, LTCG 0% becomes 8.5%. More often than not, the point where max 85% is taxable and start of 22% rate are vey close. The first IRMAA starts close to top of 22% bracket. SS floors are not indexed and over time a higher percentage will be taxable. SS, std deduction and brackets are indexed, but not enough to keep things even with the floor that does not increase. If one spouse dies, the total RMD will stay same for surviving spouse, but std deductions and brackets will be cut in half. RMD is less than 6% of total for first 13 years. If investments earn at least 6% the value of account will continue to increase over those years. Money taken from IRA and not spent will earn taxable income. Money passed to heirs will be taxed differently: Money in Roth can stay for 10 years and possibly double before it needs to be taken out and tax paid on earnings past that point. NQ accounts will receive step up, but earnings past that will be taxable beginning in year one. IRA can stay in for 10 years, but will probably have some taken each year to avoid big taxable hit in year 10.

It continues until the shut down. When filing reopens it will move over 1 place. 2024 will be current and 2023 and 2022 available.

Another important factor is the amount of the "loan". If it is more than say 35% of the employee's average paycheck, if the employee walks before the 3-year period, the employer may not be able to recapture via payroll and would be wanting to make it wages - at least for "punishment" purposes. (A daily issue on payroll chat groups, how to recoup advances, sign on, moving, etc.) If the OP is from the perspective of a preparer handling a question from a client (the employee), I would not (as preparer) step in the steaming pile. Let the employer handle it, correctly or incorrectly, and go from there. The employee reporting it as wages, when the employer has not, could result in the end of the employment. If the employee wants to work for someone who may be shady, so be it. The main issue is it is taxable period. Trying to make it not is a problem, as it trying to tax shift (if the forgiveness is a wink and nod deal instead of documented).

Done

Actually the big problem here is that you and your client will have to respond to what his employer does or doesn't do. As both Tom and Dennis have pointed out, the proceeds are more than likely W-2 wages which would be the IRS position in this situation. Will his employer at some point issue a W-2 or a 1099 or even issue anything is the big question?

It would be a whole lot easier if the client swapped checks with the employer in 3 years and "paid off" the loan and the employer "bonused" the employee the same day for the same amount (less PR taxes). Not as tax efficient but cleaner. I assume the desire of both parties is to get this through without PR tax being paid by either party. Just an assumption. If I am right, then the IRS ***could*** reclassify as wages and apply penalties and interest by contending that it is nothing but payment for services rendered by the employee. I wonder what the interest rate is and if the employee is paying interest at a market rate and on a schedule? If so, that makes it more palatable as a real loan. Tom Longview, TX

Exactly! I get so irritated with people who just repeat the mantra delay, delay, delay without looking if it's the best strategy. I've been looking at how to best reduce long term tax for many years. Every year I'll see something or read something to expand my thinking on the subject. I have Excel templates set up so I don't have to keep reinventing the wheel and I'm constantly refining and adding criteria to make long term projections better. I know I can't accurately predict the future, but even partial planning is better than no planning.

Here's another one that doesn't deal with conversions, but an idea others may be able to use. Single gal turned 70 in 2023. W-2 income mid 40's. Around 100K in 401K. She still has a mortgage and with what she had put back and SS things would be very tight. We discussed some options and decided it would be best for her to work one more year. Started SS as there was no benefit to delay past 70. Rather than having her just add SS benefits to taxable income, I had her max her 401K for that year. If she wouldn't have done that 2024 tax would be over 6K. With the 401K and way SS is taxed, 2024 tax will likely be zero or close to it. Going forward she should have enough between withdrawals and SS to replace her W2 income while not paying FIT.

This could be a very good idea. I have a few choice words on this subject. (Makes me hot under the collar just thinking about it.)

When you get back then. Enjoy your vacation!

I'm leaving today for vacation! New Zealand.

Why don't you start the topic? This one got a lot of traction.

We could also have a thread on whether moving from a trad to a roth ira makes sense and to who it makes sense. I've run the numbers a bunch of times and I just never see a significant advantage. I know some financial advisors push it because it produces activity but us 99%ers will need our IRAs to afford to retire so avoiding the RMD isn't really all that important.

This fight always reminds me of a thread in the old ATX "tree" forum. A poster named George posted in all caps, and a handful gave him a ton of sh*t about it. He apologized as his eyes weren't the best, and cap were easier to see. I don't have a problem with either, but I respect the rules of which ever "arena" I am in at the time. ALL CAPS on returns though!

I have never liked annuities for personal reasons. I like the stock market even less. I, personally, have been laddering CDs for a few years now and am amazed at the interest I am amassing. Bottom line is that my original investment will always be there. This isn't necessarily the answer for everyone. My first caution is to keep a safe cushion that is available for use should any unexpected event occur. My son is of the age where he could draw from his IRA or Pension at any time without penalty. He also has a safe cushion. I couldn't have given him any better advice at this time, As Judy said, look at all the angles. Examine the ins and outs and goals. If in doubt, you should not be giving financial advice.

It's a tax return, not an essay. No punctuation either. Same reason.