How to Provide Employees Up to $5,250 in Nontaxable Student Loan Repayment Assistance This Year | Insights & Events

How to Provide Employees Up to $5,250 in Nontaxable Student Loan Repayment Assistance This Year | Insights & Events

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, employers can now make nontaxable funds of as much as $5,250 to staff as student loan reimbursement help, however provided that the funds are made by December 31, 2020, below an academic help program that meets the necessities of Internal Revenue Code (Code) Section 127. By using such a program, each employers and staff will keep away from federal payroll taxes on qualifying funds, and staff will save on federal revenue taxes that may in any other case apply.     


Until pretty just lately, there was no obvious method for an employer to offer student loan reimbursement help on a nontaxable foundation. As a end result, regardless of the well-documented detrimental influence of burgeoning student loan debt, student loan reimbursement help remained a comparatively unattractive profit. As we mentioned in a earlier article, this modified considerably in 2018 when the Internal Revenue Service issued a personal letter ruling permitting an employer’s program to match student loan repayments with contributions to the employer’s retirement plan. Such an identical program helps staff struggling to adequately save for retirement whereas paying down student debt, but it surely doesn’t present direct help to repay student loans. Now, with the passage of the CARES Act, employers can briefly make direct, nontaxable funds to staff or lenders to help staff with the reimbursement of their student loans.

Key Requirements

To benefit from this profit, employers who already keep an academic help program might want to amend their program, and employers who don’t already keep such a program might want to undertake one. The following supplies an outline of among the key necessities of an academic help program that gives for student loan reimbursement help:

  • Written Plan – The program should be set forth in a written plan doc. There aren’t any particular necessities as to the type of the written plan doc, however the doc ought to totally describe the eligibility, advantages, and guidelines of operation and must be formally adopted by the employer.
  • Notice – Employers should present affordable notification of the provision and phrases of this system to eligible staff. Often, this system or plan doc is ready to additionally function the discover which may be distributed to staff.
  • Eligibility – Except for sure house owners, all staff could also be eligible to take part in this system. Employers, nonetheless, might restrict eligibility in quite a lot of methods (e.g., staff with a sure title or staff in a sure location), however any eligibility restrictions should not discriminate in favor of extremely compensated staff. Discrimination points might be prevented by making all staff eligible or by excluding all extremely compensated staff.
  • Benefits – An employer might present as much as $5,250 in academic help to an worker every year below this system. Historically, such help has been restricted to reimbursing staff for bills, paying bills on their behalf, or waiving bills (if the employer is an academic establishment) the worker incurs for training whereas employed. However, below the CARES Act, efficient for funds made by employers from March 27, 2020, by way of December 31, 2020, academic help consists of funds of principal or curiosity on a “qualified education loan,” as outlined in Code Section 221(d)(1), incurred for the training of the worker. The funds could also be made on to lenders or as reimbursements to staff and are mixed with another funds below this system for functions of making use of the $5,250 most.
    • For this goal, a “qualified education loan” is a debt incurred by the worker solely to pay certified greater training bills incurred by the worker across the similar time and through a time when the worker was an eligible student. See IRS Publication 970 for extra particulars.
  • Substantiation – Employers ought to require that staff receiving advantages below this system substantiate their bills.
  • No Cash in Lieu of Benefits – Employers can not supply staff advantages below this system in lieu of a money fee. In different phrases, staff can not “opt-in” or “opt-out” of advantages.
  • Claw-Back Provision – The program might require that an worker who receives advantages below this system and doesn’t fulfill some subsequent situation, corresponding to remaining employed for one yr, repay the advantages. Such a provision, nonetheless, shouldn’t be all the time enforceable below state regulation and might be tough to implement as a sensible matter.
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If you will have any questions on an academic help program or different advantages points, please contact one of many attorneys within the Employee Benefits and Executive Compensation Practice Group at Bradley.