Support Your Employees with Tax-Deductible Student Loan Payments
An enlargement of student loan advantages within the Coronavirus Aid, Relief, and Economic Security (CARES) Act supplies an allowance for employers to assist staff make student loan funds which can be tax-deductible to the employer and tax-free to the worker. Taxpayers with the power to handle their compensation packages may wish to think about including this profit providing to staff.
Expanding schooling help packages throughout this time of uncertainty might enhance long-term worker loyalty and appeal to new expertise as companies alter to ongoing modifications.
An overview of the brand new expansions follows, in addition to essential info for employers to bear in mind relating to offering student loan funds.
Section 2206 of the CARES Act revised Section 127 of the Internal Revenue Code (IRC), which usually permits as much as $5,250 of funds made by an employer towards academic bills to be tax-free to the worker.
With the enlargement of IRC 127, employers can now additionally make funds towards or subsidize the worker’s certified schooling loan, together with principal and curiosity. The annual restrict, nonetheless, stays at $5,250 and is relevant for any qualifying loan funds made between the enactment of the CARES Act on March 27, 2020, and December 31, 2020.
The enlargement of IRC 127 permitting for qualifying student loan funds already supplies staff with academic help together with tuition reimbursement packages. It’s essential to notice that coordination may be essential with current tuition reimbursement.
While the CARES Act expanded definition of academic help, all the current guidelines associated to IRC 127 stay and should be adopted.
For an employer to make the cost tax-deductible, a number of necessities should be met together with the next:
- The employer should present a written plan doc detailing this system and how you can entry the funds.
- Educational help packages, together with qualifying loan funds, aren’t thought of taxable earnings to staff.
- The student loan should be the worker’s loan, not the loan of a partner or little one.
- The academic help program or qualifying loan program should be supplied on a nondiscriminatory foundation to all staff.
- The program can’t present or provide staff a selection between academic help or wages.
It’s essential to notice that the $5,250 cost restrict applies to any potential mixture of advantages, reminiscent of worker student loans and worker education schemes.
For instance, an employer might determine to pay $3,000 towards an worker’s Master’s diploma and one other $4,000 of the identical worker’s undergraduate student loan funds. Despite the quantities going towards separate bills, the utmost quantity that might be given to the worker tax-free would nonetheless be $5,250.
To the extent an worker’s student loan is paid on a tax-free foundation underneath the expanded Section 127 by their employer, the worker can’t deduct the curiosity on the student loan underneath Section 221.
We’re Here to Help
To study extra about employer-provided student loan funds and the way they might assist your staff, contact your Moss Adams skilled.
Note on COVID-19
During this unparalleled time, we’re carefully monitoring the COVID-19 scenario because it evolves so we will present up-to-date steerage and assist that will help you fight uncertainty. For regulatory updates, methods to assist address subsequent danger, and doable steps to bolster your workforce and group, please see the next assets:
Susan has supplied certified and nonqualified plan design and consulting providers since 1987. She delivers a variety of tax options, together with well being and welfare plan tax consulting, to each public and privately held companies. She might be reached at (206) 302-6363 or [email protected].