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Legislation extends student loan repayment benefits by 5 years

The Consolidated Appropriations Act, 2021 (CAA), promulgated by President Donald Trump on December 27, extends COVID-19 relief for five years, which allows the repayment of student loans provided by the employer as a non-taxable benefit to employees under article 127 of the Internal Revenue Code. Until 2025, employers can continue to pay up to $ 5,250 per employee annually for eligible education expenses, such as tuition or student loan assistance, without increasing gross taxable income. employee.

The limit of $ 5,250 is the amount employers can currently contribute for tuition assistance and related expenses, such as fees and books, under section 127 of the tax code. Until 2025, it becomes the combined limit on loan repayment assistance or other educational assistance payments that employees receive, unless the limit – which is set by law and does not adjust. not annually to inflation – is raised by Congress.

Tuition reimbursement assistance “enables employers to address a major concern of the current workforce with a targeted and fair benefit to employees,” said Laurel Taylor, CEO of FutureFuel.io, a provider of student debt compensation management software.

According to Scott Thompson, CEO of Tuition.io, a benefits platform for employee contributions to student loans, “providing a tax subsidy for student loan repayment by employers doesn’t just benefit individual workers; this will help reduce a major drag on the economy as a whole. we are recovering from COVID-19 shock. “

Supporters of the tax benefits of loan repayments should lobby Congress to make this change permanent. About 8% of organizations currently offer student loan repayment as a benefit, according to a 2019 survey of members of the Society for Human Resource Management (SHRM).

Extend the exemption from the CARES Act

The CARES (Coronavirus Aid, Relief and Economic Security) law, signed in March 2020, temporarily allowed employers to provide up to $ 5,250 in contributions towards the repayment of tax-exempt student loans or in assistance with the 27 March 2020 to December 31. 2020. The CAA extends these provisions until December 31, 2025.

“While the amendment to the CARES law was a welcome change, the bill did not gain much attention from employers,” wrote Alexander Mattingly, lawyer in the firm’s Cincinnati office. Graydon lawyers, in a blog post. “Not only was the incentive temporary, but employers without a program in place would have to adopt a formal education assistance program for a 2020 benefit, and many employers could not afford to provide an additional incentive in a year from now. with a global pandemic. ”

The five-year extension provided for in the CAA “makes the drawbacks of the CARES law provision more palatable and shows Congress is serious about providing solutions to the student loan crisis.”

According to Kate Winget, Manager of Participant Engagement and Experience at Morgan Stanley at Work, which includes the Gradifi by E * TRADE Benefits Administrator, “It’s a huge victory that this legislation has been extended, but our work is far from over. As the adoption of this benefit grows, we must continue our efforts to make this important tax treatment permanent. ”

“SHRM has long advocated for the extension of employer-provided education assistance to include student loan repayment as a benefit and is delighted to see this benefit extended until 2025,” said Chatrane Birbal , vice-president of public policies at SHRM. “This benefit will provide some relief to employees who are currently paying off their student loan debt and will also give employers more flexibility in designing benefit offerings for recruitment and retention purposes.

Related SHRM Articles:

How the CARES Act changes health, retirement and student loan benefits,
SHRM online, March 2020

Converting PTO funds into student loan relief is a timely benefit,
SHRM online, August 2020

The business case for employee student loan repayment programs,
Everything works, January 2020

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