Signing Bonuses, Relocation Money, and Forgivable Loans: Reading the Repayment Terms Before You Sign

The offer letter arrives and there's a number on it that wasn't there in residency: $40,000 to sign. Maybe another $15,000 for the move. It may be described as a "forgivable loan" instead of a bonus, and you're not sure whether that's a meaningful difference or just a lawyer's word choice. You read it on your phone between patients and think, "That covers the moving truck and the security deposit. Great."

It might. But each of these payments can carry its own repayment terms, written into your contract, and its own tax treatment. This article walks through how signing bonuses, forgivable loans, and relocation money are treated under IRS guidance, what the AMA flags about repayment terms, and why repaying any of it can cost more than the number on the page.

If you're reviewing a first offer, this sits alongside our broader guide to reading the money parts of your first attending contract, which covers salary, RVUs, and benefits. Here we're zooming in on the upfront dollars. And if you've already received a bonus and wondered why the deposit was so much smaller than expected, our piece on supplemental wage withholding for physicians explains the withholding side in detail.

Three Kinds of Upfront Money That Look Alike on Paper

What matters is how the employment agreement itself structures the payment, not the label in the offer letter. Here are the three structures this article covers.

A Signing Bonus Paid Outright

A signing bonus is paid as wages. IRS Publication 15 describes supplemental wages as wage payments to an employee that aren't regular wages, and it lists bonuses among them. Whether you'd owe any of it back, and when, is set by your employment agreement.

A Forgivable Loan

A forgivable loan is structured as debt rather than pay. The agreement defines when and how the balance is forgiven and what happens to any unforgiven balance if you leave, so the contract language matters more than the word "loan."

Relocation Money

Relocation assistance is tied to real expenses, so it can feel different from a bonus. For federal tax purposes, the IRS Employer's Tax Guide to Fringe Benefits (Publication 15-B) says that P.L. 119-21, commonly known as the One Big Beautiful Bill Act, permanently eliminates the exclusion for qualified moving expense reimbursements from the employee's income. This means that the qualified moving expense reimbursements will be included in your taxable income. The exclusion remains available for members of the Armed Forces on active duty who move because of a military order and for certain intelligence community employees. Publication 15 separately lists payments for nondeductible moving expenses among supplemental wages.

Our article on state tax questions to ask before relocating for a new attending job covers the state-level side of a move.

Here's how the three structures compare side by side, based on the IRS sources above. Your contract sets the repayment terms, which is why it's worth reading closely.

How Clawbacks and Prorated Repayment Work

A clawback is a contract provision that requires you to return money if a condition isn't met. For upfront payments, the agreement spells out that condition and what you'd owe.

The American Medical Association says physician-employment contracts may come with add-ons such as signing bonuses, relocation allowances, and medical student loan repayments that would need to be repaid in certain circumstances, and it lists them among the employment contract terms that can surprise physicians. Here are the provisions to look for.

The Vesting Schedule

A job-seeking physician might assume that repayment will be prorated based on time with the organization. The AMA says that is not always the case, and that some contracts contain acceleration clauses that can require full repayment under certain termination situations. For illustration only: if a hypothetical contract prorated monthly over 24 months, leaving at 18 months would mean repaying the remaining 6 months, or about a quarter of the bonus. Under an all-or-nothing clause, the repayment would be the full amount.

What Triggers Repayment

The contract defines which kinds of departure trigger repayment. The AMA describes physicians who left after organizational restructuring or role realignment and still faced repayment demands because the triggering event didn't fall under any protected exception in the agreement.

Which Amount Is Owed

Check whether the contract requires you to repay the gross bonus (the full number on the offer letter), the net amount you received after withholding, or a prorated slice of either. The gap between gross and net matters for reasons covered in the after-tax repayment section below.

Repayment Timing and Offsets

Look for when repayment is due (immediately, within a set number of days, or on a schedule) and whether the agreement lets the employer offset what you owe against your final paycheck, accrued paid time off, or pending bonuses.

How Each Type of Payment Is Taxed

Here's what the IRS publications say about each type of payment.

Signing Bonuses and Supplemental Withholding

A signing bonus is a supplemental wage. According to IRS Publication 15, the Employer's Tax Guide, the withholding rate on supplemental wages is 22%, or 37% on the portion paid to an employee during the calendar year above $1 million. The publication also says supplemental wages are subject to Social Security and Medicare taxes.

Forgivable Loans and Canceled Debt

IRS Publication 525 says that if a debt you owe is canceled or forgiven, other than as a gift or bequest, the canceled amount generally has to be included in your income. How a particular employer reports and withholds on forgiven amounts is a question for the employer and your tax professional.

Tax Gross-Ups

If an offer mentions a gross-up, meaning an added payment intended to cover taxes on another payment, ask how it's calculated and whether it would be part of any repayment.

Why Repayment Comes Out of After-Tax Dollars

This is the part of upfront money that's easy to overlook. Suppose a contract pays a $50,000 signing bonus with a two-year commitment and an all-or-nothing clawback of the gross amount. Your employer withholds taxes before the money reaches your account, so the deposit is less than $50,000. Now suppose you leave at 20 months. The contract asks for $50,000 back.

You'd be repaying $50,000, which is more than what reached your account after withholding. The difference has to come from somewhere: savings, a new employer's bonus, or cash set aside for the next move.

The tax rules for relief depend on when you repay. IRS Publication 525 on taxable and nontaxable income explains that if you repay more than $3,000 of income you included under a "claim of right" (meaning it appeared at the time that you had an unrestricted right to it), you may be able to deduct the repayment as an itemized deduction or choose a credit for the year of repayment, using whichever method results in less tax. Separately, if you repay wages from an earlier year on which Social Security and Medicare taxes were paid, the same publication says to ask your employer to refund the excess, and if the employer refuses, a claim for refund can be filed on Form 843. A CPA can help you work through which of these applies.

One approach some households use is keeping part of an upfront payment set aside until the service period ends. It's the same logic behind holding a household reserve in general, which we cover in how much cash a physician family keeps and where to hold it.

Questions Worth Asking the Employer Before You Sign

Here's a list you and your advisors can work through with the offer in hand.

• Is this payment a bonus, a forgivable loan, or a reimbursement, and where is that stated in the employment agreement itself (not just the offer letter)?
• When is it paid? At signing, at credentialing, at your start date, or on your first payroll?
• What is the exact service period, and on what date does the repayment obligation end?
• Is repayment prorated monthly, stepped annually, or all-or-nothing?
• Which kinds of departure trigger repayment? Does termination without cause, a change in law, or your disability or death trigger it?
• Would you repay the gross amount, the net amount received, or a prorated balance?
• For a forgivable loan, does interest accrue, and is the interest forgiven along with the principal?
• How will forgiven amounts be reported, and will taxes be withheld from your paychecks as forgiveness occurs?
• Is there a tax gross-up, and is the gross-up included in any repayment?
• Can the employer offset repayment against your final paycheck, paid time off, or pending bonuses?
• Is repayment due immediately, or can it be paid over time?

If your package also includes student loan repayment assistance, the AMA lists medical student loan repayments among the add-ons that would need to be repaid in certain circumstances, so the same questions apply.

When to Involve a Contract Attorney

The questions above help you understand what the contract says. The AMA's guidance, titled "Rule No. 1 for your first employment contract: Hire a lawyer," advises always hiring a health care specialist attorney for a physician's employment agreement, and says to know the repayment clauses, including any obligation to repay all or part of the funds you received.

Provisions an attorney can help you read include:

• A forgivable loan's promissory note, including any default and acceleration terms
• A clawback and a non-compete in the same agreement
• What you'd owe if you leave before a service period ends

A financial planner's role is different. Attorneys interpret and negotiate the contract. A planner can help you look at what the upfront money means for your household: how much to hold back and how a clawback scenario would affect your savings plan. For a broader view of the first-year decisions that sit around a new contract, our attending transition checklist walks through them in order.

A Hypothetical Contract, Start to Finish

Picture a fellow signing a first attending contract with a $30,000 signing bonus and $12,000 in relocation money. The bonus is clawed back on a monthly prorated schedule over three years. The relocation money is all-or-nothing for the first 12 months. Both clawbacks are based on the gross amount. One approach would be to treat the relocation money as spent (it's covering the move) and keep the after-tax portion of the signing bonus in a high-yield savings account until the most expensive part of the clawback window passes. Another would be to put it toward high-interest debt and accept the repayment risk. The trade-offs depend on how settled you feel about the job, your other cash reserves, and your loan situation.

Now picture an attending two years into a three-year forgivable loan who's considering an offer elsewhere. The remaining balance may come due under the agreement, and the new employer is offering its own bonus. The questions here include timing: whether a later start date would change how much of the loan is forgiven, how the two employers' payments land across tax years, and whether the new bonus carries its own clawback. These are details worth working through with a CFP® professional and your CPA.

The Upfront Money Is Part of the Contract

Signing bonuses, forgivable loans, and relocation money can make a career transition easier. They also come with repayment terms worth reading closely. Knowing which structure you have, what would trigger repayment, which amount you'd owe, and how each is taxed puts you in a better position to read the offer for what it is.

If you'd like to talk through how an offer fits your household's bigger picture, from the upfront money to the savings plan that follows, we'd be glad to have a conversation about whether we're the right fit. You can start that conversation here or email us at contact@physicianfamily.com with a few details about where you are in your career.

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