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2020 CARES Act: Repay employee student loans up to $5,250 tax-free

The CARES Act provides pandemic relief for employers to help repay employee student loans through a one-time, temporary amendment to Section 127 of the IRS Code.

Employers who help repay employee student loans take a big step in forming lasting trust and partnership with valued staff. Employers who help repay employee student loans take a big step in forming lasting trust and partnership with valued staff.

Many employers want to assist employees in the challenges that come with the COVID-19 pandemic. Now, the CARES Act provides a temporary opportunity to help repay employee student loans.

The Coronavirus Aid Relief and Economic Security Act (the “CARES Act”) provides a way for employers to help repay employee student loans, with tax benefits for both the employer and employee.

Generally, a Section 127 Education Assistance Plan only allows an employer to pay or reimburse tuition and other qualified educational expenses incurred while the employee is with that employer.

Section 2206 of the CARES Act modifies Section 127 of the Internal Revenue Code so that employers can pay up to $5,250 to repay employee student loans during the pandemic emergency period beginning March 27, 2020, and ending December 31, 2020. The amount paid is tax-free to employees and tax-deductible for the employer.

A one-time opportunity for employers

This temporary program differs from traditional Student Loan Repayment Programs (SLRP) offered by many employers in that the CARES Act relief is entirely tax-free to the employee, whereas SLRP payments are fully taxed, as much as 40% depending on the employee’s tax bracket and other factors.

It is, most likely, a one-time chance for employers to really make a difference for their employees, making it an excellent retention and recruiting tool in this difficult period.

Is the CARES Act program to repay employee student loans right for your company?

Chances are, if you have technical, managerial, or professional staff in your employ, you have workers struggling to repay student loans. Two-thirds of college graduates leaving school in 2018 had an average student loan debt of $29,200.

Unable to get out from under this debt in a reasonable time can be detrimental to your employees’ access to other credit, such as a mortgage, auto loan, and other household lending. This has a major impact not only on the employee’s quality of life but on wealth creation and the economy as a whole.

Taking advantage of this one-time chance to provide a much-needed tax-free benefit to help repay employee student loans can pay big returns for everyone.

Section 127 EAP requirement

The CARES Act employer-based student loan relief is provided through the employer’s Section 127 Educational Assistance Program (EAP), which is established with “a separate written plan of an employer for the exclusive benefit of his employees to provide such employees with educational assistance.”

This plan document requirement is easily met with the Core 127 plan document package. For a low, one-time fee of just $99, this package includes the formal written plan document, summary plan description, customized election, and claim forms, and more.

To order or learn more about the Core 127 plan document packages to help repay employee student loans, send us a note (using the form below) or give us a call today.

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