Joyce's employer loaned her $50,000 this year (interest-free) to buy a new car. If the federal interest rate was 3%, which of the following is correct?

Question

Quizplus · Accepted Answer

According to the IRS, when an employer loans an employee money at an interest rate below the federal rate, the difference between the actual interest rate and the federal interest rate is considered imputed income and is taxable to the employee. In this case, the federal interest rate is 3%, so any interest-free loan from Joyce's employer would result in $1,500 of imputed compensation income for Joyce. Therefore, the correct answer is C.

Joyce's Employer Loaned Her $50,000 This Year (Interest-Free) to Buy