Repayments made by employers to an employee's student loan can be pre-tax up to $5,250 annually through 2026, significantly increasing the efficacy of employer contribution programs.
With passage of the new stimulus bill by Congress today, employers now have a five-year extension of a CARES Act provision that allows exclusion from taxable income for up to $5,250 in employer-paid student loan repayments. The provision allows employers to make tax-free contributions of up to $5,250 per employee annually toward employee student debt without raising the employee's gross taxable income. The newly enacted statute will extend the tax relief provision for student loan repayment benefit programs for 5 years, beginning in January 2021.
Prior to the CARES Act passing in March of 2020, both employees and employers faced tax obligations when participating in student loan repayment benefits. Since then, employers have been able to make tax-free contributions of up to $5,250 per employee annually toward employee student debt without raising the employee’s gross taxable income. Until now, it had been unclear whether lawmakers would decide to extend the provisions that those enabled tax-free contributions during 2020.
Now employers and borrowers alike will enjoy tax relief on student loan repayment benefit programs for the next 5 years, giving employers plenty of time to see the returns of launching a program that repays employees' student debt. For many employers that held off on offering student loan benefits because of tax uncertainty going into 2021, this new legislation removes those barriers to companies enhancing their employee financial wellness, recruitment, and retention offerings with pre-tax student loan repayment, and gets employees out of debt sooner.
Following the US government’s repeated halts on federal student loan interest accruals, the extension of this bipartisan provision lets employers engage in long-term solutions for debt-strapped employees. This combination of relief for both employers and student borrowers makes now the best time for both employees and employers to participate in these types of programs.
Goodly lets employers provide meaningful employee benefits. We give employers a single-platform solution to automate payments such as employer-sponsored contributions to student loans and 529 college savings accounts. For more info from Goodly, visit www.goodlyapp.com or follow us on LinkedIn. We’d love to hear from you at [email protected], or by scheduling a demo of our platform here.