In a loan-regime split-dollar arrangement, the employer’s premium payments are structured as loans — and the employee is taxed each year on the value of that below-market loan.
How it works
Imputed interest is the outstanding premium loan balance multiplied by the Applicable Federal Rate (AFR) for the relevant term — the taxable economic benefit to the employee for the year, even though no cash actually changes hands.
What this does not include
An “economic benefit regime” split-dollar arrangement (the other common structure) taxes the employee differently, based on the current cost of insurance protection rather than imputed loan interest — this calculator covers the loan-regime structure specifically.
How to use this calculator
- Enter the outstanding premium loan balance.
- Enter the applicable AFR for the loan term.
Frequently asked questions
Why is this taxed as imputed interest rather than as income?
Because the arrangement is structured as a loan — the IRS treats a below-market loan as if market-rate interest were paid, then imputes that interest as taxable income to the borrower (the employee).
Does the loan balance grow each year?
Yes, typically — as the employer pays additional annual premiums as further loans, the outstanding balance (and the imputed interest calculated on it) grows accordingly.
Who eventually repays the loan?
Usually the employer is repaid from the policy’s death benefit or accumulated cash value when the arrangement terminates or the insured dies.
