The sheer amount of student loan debt accrued by individuals graduating from higher education has been increasingly covered in the news.

While the government has been working to forgive student loan debt for certain people, employers have some opportunity to help take the burden off employees and their tax liability.

In addition to decreasing employee stress, it can also be used as an employee recruitment and retention incentive.

The CARES Act and student loan repayment

The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 and its extensions include a provision that allows employers to provide relief to employees with outstanding student loan debt. This program allows employers to pay up to $5,250 toward the student loan debt for eligible employees. All monies paid are to be excluded from income and payroll taxes for both the employee and employer portion.

This could be a significant principal decrease for employees with a national student loan average of more than $30,000.

What student loan debt is qualified?

Any amount an employer pays to a student loan held by an employee up to $5,250 is qualified for the income and payroll tax exclusion, if the payments are made before Dec. 31, 2025. This includes federal and private student loans and payments made directly to the employee or the loan servicer.

What about self-employed individuals with student loan debt?

The answer is yes! Even self-employed individuals can take advantage of this tax break by paying their own student loans, as long as they’ve gone through the process of establishing an education assistance program that covers this employee benefit.

For assistance in creating an education assistance program and establishing benefits with appropriate tax documentation steps in place, contact your tax professionals.

Jennifer Babcock is a CPA and manager at Cordell, Neher & Company PLLC, a Wenatchee public accounting firm. She may be reached at (509) 663-1661 or jennifer@cnccpa.com. 

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