Congress for granting a five-year extension to a temporary tax exemption that allows employers to pay up to $5,250 annually toward each employee’s student debt on a tax-free basis.

Employers looking to provide any of its workforce tax-free assistance with student loan debt should check and see if they have an existing 127 education assistance plan. If a 127 plan is in place, consider expanding the program to assist with student debt repayments and notifying employees of the benefit. For employers that do not already have a 127 plan, consider adopting a written plan, which can be limited to just repayment of student loans. These programs are relatively easy to install.

This CARES Act relief gives employers the ability to provide up to $5,250 tax-free repayment of student loans for employees. Payments can be made directly to the lender (or to the employee, for example, upon documentation of loan repayments).

This expansion of the 127 plan is optional. However, if elected, the employer must notify employees of this change in the program. Moreover, employees cannot have the choice between getting (1) cash or other taxable wages/benefit and (2) the student loan benefit. The program cannot be offered as part of a cafeteria plan. The program also cannot discriminate.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

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