As of September 1, 2023, the student loan forbearance program put in place during the pandemic has ceased. Interest on student loans has begun accruing again, and payments will need to be made again next month.
As an employer, you can help your employees by assisting them in paying off their student loan debt and receiving tax benefits for doing so under Section 127 of the Tax Code.
So - How do you do it?
In order to participate in what is being called an educational assistance program, the regulations require a "written benefits plan". Think of this as something similar to the policies and procedures that govern health care, retirement benefits, etc. that you offer your employees.
The written benefits plan:
- CAN allow for up to $5,250 per employee per year for educational benefits - this includes NOT limited to repayment of student loans.
- CANNOT provide more than 5% of the total annual benefits to owners with more than 5% of the company's stock
- CANNOT favor highly compensated employees
- MUST be intended to help with the costs associated with an education. (For example, an employee cannot choose a different benefit in lieu of repayment funds.)
- MUST be provided to all employees with a means of reasonable notification.
Once the plan is set up, you can make payments directly to the lender or reimburse the employee for their payments. Make sure you maintain documentation that supports payment to the lending institution, even if the employee makes the payment. These payments up to $5,250 per employee per year will not be taxable to the employee or subject to payroll taxes to you, the employer.
Any payments above $5,250 per employee per year will have different tax treatment.
If you would like to hear the news straight from the IRS, they are providing a free 75-minute webinar on Thursday, Sept. 14, at 2 p.m. ET that will discuss the program and provide time for Q&A!
You can register at the Webinars for Small Businesses page on IRS.gov.
If you would like help implementing a plan, contact us today!