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Example of calculating the taxable benefit

Joshua is your employee. He borrowed $150,000 from you at the beginning of the year. The prescribed rate of interest for the loan is 3% for the first quarter, 4% for the second and third quarters, and 5% for the fourth quarter. Joshua paid you $2,000 interest on the loan no later than 30 days after the end of the year. During the year, a company related to you paid $1,000 interest on the loan for Joshua. Before the end of the same year, Joshua repaid the $1,000 to the company.

Calculate the benefit to include in his income as follows:

Prescribed rate × loan amount for the year:
3% x $150,000 x 1/4 = $1,125
4% x $150,000 × 2/4 = $3,000
5% x $150,000 × 1/4 = $1,875............................................	$6,000
plus
Amount paid by a third party...............................................	1,000
	$7,000
minus
Interest paid ($2,000 + $1,000) ...........................................	$3,000
Amount Joshua repaid.........................................................	1,000
	4,000
Joshua's taxable benefit....................................................	$3,000