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A church is willing to payoff my daughter's student loan…

A church is willing to...
A church is willing to payoff my daughter's student loan debt of $200,000 and in return she would volunteer at the church for 5 years. They are discussing how to structure the payoff without having a tax problem. Can the church pay the loans directly as a gift and be tax free?
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Answered in 7 minutes by:
3/22/2018
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 18,390
Experience: 15years with H & R Block. Divisional leader, Instructor
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Even if her "required " volunteer work is not seen as an employee, if the church gives cash or a cash equivalent of $600.00 or more to a volunteer, the church must issue that person a 1099-MISC. All cash or cash equivalent gifts must be reported to the IRS.

If the IRS deems her position as employment then the full amount is compensation.

This would also include the church directly paying her loan because she is required to perform services to receive the gift.

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Customer reply replied 5 months ago
Any suggestions on how to minimize the tax in this scenario?

They could pay a portion each year. That would reduce the tax into 5 payments.

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Customer reply replied 5 months ago
Is it possible for the student loan companies to agree to a 5 year payoff with no interest? What would the tax rate be?

I have no idea if they would agree to a hold on the interest. That is outside of tax.

The tax rate would be regular rate of tax for daughter's filing status. At $40k a year (split 5 times for the $200K) she would be in the 12% bracket.

If paid in full 32% rate

I hope this information has been useful.

A positive 5 star rating is appreciated so I am credited for assisting.

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 18,390
Experience: 15years with H & R Block. Divisional leader, Instructor
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