Promissory Note
(Employee Loan)

This template is a Promissory Note for use when an employer lends to key employees, such as for paying taxes incurred on equity grants and/or the taxes incurred with respect to such grants, sometimes recognizing them as advances against salary, etc. This template includes practical guidance. drafting notes, alternate clauses, and optional clauses. Closely consider the tax treatment of loans to employees so that they are not treated as hidden compensation to the employee (if forgiven or offered at below market interest). Failing to comply with the relevant tax rules may cause the loan to be treated as taxable income to the employee as disguised compensation. See I.R.C. § 7872 and Article: Taxation of Below-Market Loans Under § 7872:* This Could be a Lot Simpler!* I.R.C. 7872 (2000)., 21 Akron Tax J. 33 and ARTICLE: Corporate Heroin: A Defense of Perks, Executive Loans, and Conspicuous Consumption, 93 Geo. L.J. 1835. For a full listing of key content covering equity incentive plan considerations, see Equity Incentive Plan Resource Kit. For a full listing of content relating to promissory notes for use in various practice areas, see Promissory Notes Resource Kit (Small to Mid-Sized Law).