I'm 26 and my job just offered me a $250,000 loan that I won't have to pay back if I stay for 10 years. Is this a trap?

Let’s pretend we have a worker named Liam whose company sent him a promissory note for a $250,000 forgivable loan. It is a 10-year loan at 4.87% interest, but for each year that Liam stays with the company, a portion is forgiven. The balance is wiped clean after a decade. If Liam leaves early, he must repay the remaining amount due.

While this seems like a great deal, there are both tax and career implications to consider.

Forgivable loans have big tax consequences

The first key thing Liam needs to know is that, even if the loan does end up forgiven in full by his employer, it’s not really free to Liam because, depending how it is structured, it could come with a huge tax bill.

“If the paperwork for the $250,000 loan is not done properly and the money is just given to you for staying at the company the IRS can consider the whole $250,000 as compensation in the first year,” explained George Dimov, CPA and founder and CEO of Dimov Tax, to Moneywise. “This means you have to pay taxes on the $250,000 loan right away.”

In this case, Liam’s company did do the paperwork right, with an official promissory note and a stated interest charged.

But that doesn’t mean Liam just avoids any obligations to the IRS. “The forgiven part of the $250,000 loan is taxed as wages for that year,” Dimov said. “You also have to pay payroll taxes on the forgiven part of the $250,000 loan. This all goes on your W-2.”

So, if Liam accepts the money, he must plan to cover the taxes due on the forgiven debt. Of course, the problem is that he’s received the money upfront but the tax bill hits each year as the balance is forgiven. He’ll need to set aside some of the funds to prepare for that.

Forgivable loans could also have career consequences

Aside from the tax bill, there’s also the issue of what accepting this loan could mean for Liam’s career going forward.