“Employers may save up to 10% in federal and state taxes (varying according to state tax rates). Studies have indicated a large majority of employees between the ages of 21 and 36 would commit to an employer for five years in exchange for assistance in paying off their student loans.”
The recent federal stimulus in wake of the COVID-19 pandemic address rising student loan debt: Employer
contributions to reduce student loan debt are now tax free. Here’s how employers can take advantage to help recruit and retain top talent. The benefits cannot be offered only to highly compensated employees or those with more than 5% ownership in the company.
“BE THE ORGANIZATION THAT YOUR EMPLOYEES VALUE”
Is your company seeking savings and creative ways to attract and retain the most skilled workforce? If so, the changes to the tax code in the stimulus bills over the past year create an added incentive for student loan programs.
The multiple COVID-19 relief packages have attempted to help reduce this student loan debt. The CARES Act in 2020 expanded Section 127 tax code provisions for educational assistance to allow employers to also make contributions towards their employees’ student loan debt up to the $5,250 annual max, without including the company contributions in the employee’s gross income (making them tax free).
H.R. 133, the Consolidated Appropriations Act, was signed into law on December 27, 2020, extending the tax exemption for
five years, until December 31, 2025.
The expanded tax code provisions include employer contributions to their employees’ student loan debt payments as a pre-tax benefit, up to a maximum limit of $5,250 per year. Previously, such employer contributions were considered taxable income. The $5,250 combined limit is for total student loan repayments and other educational assistance, such as paying for tuition reimbursement or direct employee education.
These changes are projected to save employees up to 30% on state and federal income taxes, with variations based on individual tax rates and whether student loan interest was deductible. Employers may save up to 10% in federal and state taxes (varying according to state tax rates) and it could also help employers’ recruitment, retention, and employee wellbeing efforts and productivity.