Why You Should Offer Student Loan Repayment As An Employee Benefit

I recently told my boss to cut my salary by $10,500. He was happy to grant my request.

When I told my husband the ‘good’ news, he was understandably shocked and wanted an explanation pronto. I told him that the pay cut was a financially savvy way to help pay off his student loans. He was skeptical as I’m sure you are but bear with me as I explain my latest money savings plan.

While I'm building my company, I'm still working at a full-time job. When I make more money at my side job than I do from my full-time job, I'm going to quit and devote all my time and energy to Annie Yang Financial Corporation. To make sure I have all the information I need to make my company successful, I’ve been researching corporate tax codes and deductions in addition to which benefits I could offer to my W-2 employees. Even though I own the company, I'm also an employee and was wondering about the various kinds of benefits I could give myself. The benefit that piqued my interest was student loan repayment. I personally do not have student loans but my husband owes about $35,000. Although I really hate debt, I have not been paying it off. I have a good reason not to. My husband is currently in a PhD program. He'll be in school for maybe another two to three years. Payments are not due and do not incur interest while he’s still in school. So there is no logical benefit for me to pay off his student loans at this time. I planned on paying the payment in one lump sum when he graduates.

In the meantime, how can I utilize this student loan repayment benefit as a corporation? Since I own 100% of my company’s stock, as an employee, I am not able to take advantage of this benefit. I must own less than 5% of the company to be able to participate in this awesome deal. So what now? Since I am also an employee for someone else’s business where I don’t own more than 5%, perhaps I can get the student loan repayment benefit there. I calculated that in order to qualify, my salary would need to be reduced by $10,500. I can then pay myself the same amount from my own company. This way, I am still getting my full salary but splitting it between two companies to be able to take full advantage of this useful tax benefit.

With this new information, I will no longer need to make a lump sum payment if my employer can pay the student loan directly. In turn, I reduce my income tax payment. So I did the following calculation. To be able to earn the amount of the loan ($35,000) after tax, my gross income would have to be $45,000 of which $10,000 of it will go toward the government. In addition, my employer has to pay payroll taxes on the $45,000. I calculated that my employer would have to pay $6,000 in order to pay me $45,000 of which $10,000 will be paid in income tax.

Please indulge me and follow me down this rabbit hole. My employer is paying me a total of $51,000. From that amount deduct $6,000 and you have a balance of $45,000. When you deduct $10,000, you get $35,000 (the amount of the student loan). The total for both deductions, amounts to $16,000 worth of taxes. Why go through this hassle? Why not pay the loan directly and skip the $16,000.

The yearly maximum student loan repayment benefit that you can receive from a company is only $5,250. But I found a way to double that amount. My boss owns two companies and he's paying my income out of one. I suggested that he make me an employee of both of his companies so that my salary is split between both companies. This way he can offer me a student loan payment of $5,250 from each salary for a total of $10,500 worth of benefits. Fortunately for me, my boss agreed.

I am pleased that Annie Yang Financial seems to be growing very rapidly and exponentially. At the rate that I take in new clients, I hope to be working at one job as my own boss in the near future. It will take three and a half years to receive the full payment of $35,000 at my current full time job. So I might as well get started and take advantage of this benefit while I can.

I've enjoyed learning about tax law and while I don't aspire to be a tax advisor, it was helpful to find out about various benefits and share that information with you. So now you know why I requested a $10,500 salary cut and why it makes financial sense. I hope my revelation will inspire you to come up with creative ways to be compensated by your employer. Do your own research to find out what kind of benefits you might qualify for. Raises are not guaranteed. By asking for benefits instead (that don’t have income taxes and are fully tax deductible for your employer) your boss might be more willing to say yes. I encourage you to go for it.