An agency is obligated to pay amounts required to be
withheld from an employee's wages even if those amounts are not actually
withheld. Federal tax law requires agencies, like other employers, to
withhold employment taxes from employees' wages. The repayment of
student loans, however, may be subject to such terms, limitations, or
conditions as the agency and the employee may mutually agree.
Consequently, an agency's repayment of the student loan may be made
contingent on an employee's payment of employment taxes (including
income taxes and the employee's portion of social security and Medicare
taxes) to the agency. In this case, to fulfill its tax obligations, the
This answer was provided by the Internal Revenue Service (IRS). For further guidance/clarification on this issue, agency representatives may contact IRS (Federal, State and Local Governments) at (202) 283-9665.
To use this method the agency follows these steps:
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