The Coronavirus Aid Relief and Economic Security Act (the “CARES Act”) provides a way for churches to provide both tuition, books, supplies, and student loan payments tax-free through January 1, 2026.
Generally, a Section 127 Education Assistance Plan only allows the church to pay or reimburse tuition and other qualified educational expenses.
Section 2206 of the CARES Act modifies Section 127 of the Internal Revenue Code so that the church can pay up to $5,250 to repay employee student loans. The amount paid is tax-free to employees.
If you decide to offer a tax-free student loan repayment program through Clergy Financial Resources, here are the next steps
to consider:
Eligibility: Ensure that your student debt repayment plan meets the nondiscrimination eligibility requirements.
Plan Document: An IRS Section 127 program requires a separate written plan document that governs how educational assistance is provided to employees.
The program must not provide eligible employees with a choice between educational assistance and other benefits or compensation that would be included in gross income.
The Plan Document describes the plan to qualify for the tax-free status of the benefit. It includes all plan information, rights, responsibilities, and benefits. The Summary Plan Description (SPD) contains the same basic information in language that is more accessible to the average employee, along with disclosures and notifications required by the IRS and DOL.
Payroll: Adjust payroll to exclude benefit payments up to the $5,250 limit as income, inclusive of student debt payments, tuition reimbursement, and course instruction.
Contact Clergy Financial Resources to help you with the next steps.
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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.
For more information or if you need additional assistance, please use the contact information below.
Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369
Tel: (888) 421-0101
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com