BenefitEd, a joint venture between Ameritas and Nelnet offering customized student loan repayment and college savings programs to companies of all sizes, will begin working with employers to offer tax-advantaged student loan repayment programs.
As part of HR 748 in the COVID-19 $2 trillion stimulus package, which was signed into law by the President on March 27, 2020, employer contributions toward employee student loans will be nontaxable for both federal and state purposes for the remainder of 2020. This change to the federal law will make student loan repayment programs even more valuable to employees and therefore more impactful for employers to offer as a recruiting and retention benefit.
BenefitEd is prepared to assist employers looking to take advantage of a tax-free, customized student loan repayment program. “In the current economic situation, some employers might be looking for a unique benefit for recruitment and retention, while others can’t add additional benefits at this time. Whether it is now, or in the future, BenefitEd is ready to work with employers to provide this valuable benefit,” said Mike Riordan, CEO of BenefitEd.
With nearly 45 million Americans struggling with student loan debt, this bill gives companies an opportunity to make a positive impact on their employees’ financial wellbeing without any tax penalty to the employee. This law is extremely positive for employees as it will both increase their take-home pay and help in eliminating their student loan debt even faster.
The new law amended Section 127 of the Code, allowing both principal and interest on student loan payments from employers to lenders to be tax-free for both federal and state purposes. Payments made by employers toward their employees’ student loans, in combination with tuition reimbursement, are limited to $5,250 per year on a tax-free basis. Any amounts paid in excess of this threshold are subject to taxation to the employee.
Employers can continue to fully deduct payments made toward employee student loans. It is worth noting that employees cannot deduct the interest or take credit for these payments, as they themselves did not pay them, nor were they included in their taxable compensation. Currently set to expire on Dec. 31, 2020, it is projected that this change will become part of the annual extenders package.
This change means employer contributions to student loans through any of BenefitEd’s programs, including Employee Choice, are tax free to the extent they meet the parameters mentioned above. Employers interested in utilizing tax-advantaged student loan repayment programs should contact BenefitEd for additional information.