While a college education is a great investment in yourself, paying off student loans is a common burden for many. As employers look for new ways to attract and retain employees through the benefits that are being offered, one benefit that may be worth considering is offering a Student Loan Repayment Assistance program.
What to know about Student Loan Repayment Assistance:
- The Consolidated Appropriations Act of 2021, allows employer‐provided student loan repayment as a tax‐free benefit to employees for five additional years (through December 31, 2025) towards eligible education debt.
- Annual contributions have a maximum limit of $5,250 per employee.
- Contributions can be used towards tuition and related expenses such as fees and books (spelled out in Section 127 of the federal tax code).
- Tax Implications – Employers can make tax free contributions of up to $5,250 a year towards each employee’s student loan debt. In other words, neither the employer nor the employee will have any tax liability for any money applied towards student loans.
- This benefit will be available through December 31, 2025.
- Companies that launch student loan repayment plans usually limit their per‐employee payouts to around $100 per month.
- Written Plan – No specific requirements, but document should fully describe the eligibility, benefits, rules of operations and be formally adopted by the employer.
- Notices – Notes must be made as to the availability and terms of the program to all employees that are eligible. Many provide a plan or program document.
- Eligibility – Except for certain owners, all employees may be eligible. Eligibility restrictions must not discriminate in favor of highly compensated employees.
- Payments – Can be made directly to lenders or as reimbursements to employees.
- Substantiation – Employers should require that employees receiving benefits substantiate their expenses.
- No Cash in Lieu of Benefits – Employees cannot be offered benefits under the program in lieu of a cash payment.
- Claw Back Provisions – Employees may be required to satisfy subsequent conditions (for example, employed for a specified amount of time) and repay the benefits should the conditions not be met. Note, this is not always enforceable under state law.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
Do you have questions? We are happy to help! Please call Tycor at 610-251-0670 or CONTACT US by email.