Florida’s Tax on 401(k) Loans

By Nevin Adams • 9/29/2014 • 1 Comments

If you work with a plan in, or with certain connections to, the state of Florida, you may have a compliance problem with your plan loans. 

An update from Bryan Cave, LLP notes that under its revenue laws, Florida imposes a document tax on loan transactions that are made, signed, executed, issued or otherwise transacted in the Sunshine State. Moreover, lest you think that those 401(k) loans can’t possibly be included in that definition, Bryan Cave explains that the Florida Department of Revenue has specifically ruled that 401(k) plan loans are subject to the tax. 

Nor is this a new law, though it may well be one that has been overlooked by many plan administrators.

Failing payment of the tax, the Florida law further provides that no state court may enforce the provisions of a promissory note if the document tax is not paid — which could mean that a 401(k) plan is extending loans that are not adequately secured, a circumstance that Bryan Cave says creates the potential for both prohibited transaction issues and plan operational failure issues. 

The update goes on to caution that the Florida statute arguably reaches not only plan loans extended to participants who are Florida residents but to plans with sponsors or third-party administrators resident in Florida. It also notes that the Florida law does contemplate a process for paying past due taxes. The tax rate on written obligations to pay money is $.35 for each $100, or fraction thereof, of the obligation evidenced by the document.  

If there’s a silver lining here, Bryan Cave notes that it’s that no other state appears to have a similar transactional tax that would apply to plan loans.

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Comments (5)

Posting comments here does no good - they are not actually posted.
9/30/2014 3:53 PM
A Floridian
Has this so called required tax ever been explained? How to deduct this tax? Where to send this tax? What this tax is used for? I've been deal... Read more
9/30/2014 9:05 AM
Another Floridian
That certainly is interesting. I doubt they have the manpower to audit every plan in the state let alone even have a clue which plans are or are not ... Read more
9/29/2014 11:11 PM
What is the purpose of writing this article? Do you work for the Florida Department of Revenue? For the most part, practitioners in Florida are wel... Read more
9/29/2014 2:31 PM
Does the Florida Documentary Stamp Tax Due on Pension Plan and 401K Loans Florida also include ERISA 403(b) and Non ERISA 403(b) plan loans?
9/29/2014 10:51 AM
Debra Schmidt Gerken