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The CARES Act has a provision which is aimed at easing student loan burdens during the coronavirus pandemic. Qualified student loan payments are temporarily added as acceptable tax-free contributions to education-related employee benefits. Employers can make tax-free payments of up to $5,250 toward their employees’ student loans.
Employer payments toward the qualified education loans can be excluded from the employee’s taxable income between March 27, 2020 through December 31, 2020, resulting in tax advantages for both parties. Employer contributions made outside that time frame or in excess of the limit are generally considered taxable wages subject to all employment taxes.
Currently, employers can pay up to $5,250 per year toward an employee’s education expenses (textbooks, tuition, etc.) on a tax-free basis. This means that employers can provide each employee with up to the maximum in either education-related expenses, student loan payments, or a combination of both for a limited time.
Employers should become familiar with this temporary change and consider establishing/amending any written education assistance programs to take advantage of the favorable tax treatment for contributions toward their employees’ student loans.
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This blog is intended to be a compilation of information and resources pulled from federal, state and local agencies. This is not intended to be legal advice. For up to the minute information and guidance on COVID-19, please follow the guidelines of the Centers for Disease Control and Prevention (CDC) and your local health organizations.
National Insurance Services is not a law firm and no opinion, suggestion, or recommendation of the firm or its employees shall constitute legal advice. Readers are advised to consult with their own attorney for a determination of their legal rights, responsibilities and liabilities, including the interpretation of any statute or regulation, or its application to the readers’ business activities.
