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By: Chad J. Richter 

Certain employee educational expenses paid by their employers have been tax free to employees for numerous years. The CARES Act has temporarily broadened those educational expenses to include qualified student loans. For the tax year 2020, employees may exclude from their gross income up to $5,250 for employer payments made toward their student loans.

These payments are not only tax-free for employees, but also allow employers to avoid payroll taxes because the Internal Revenue Service considers the payments to employee student loans to be educational assistance. It’s a win-win situation.

Employers may direct the student loan payments to the lender or to the employee. The payments may be applied toward loan principal or interest. We recommend applying the payments to loan principal only, if possible. This will allow the employee to retain the benefit of the student loan interest deduction.

To qualify for this economic stimulus opportunity, the employer must implement a separate written educational assistance program that meets a number of requirements set forth in the Internal Revenue Code. If you are an employer looking to assist your employees with their student loan burdens, this may be a viable opportunity for you and your employees.

Professional Services Disclaimer: Please note that the information presented here is as an educational service, and while it contains information about legal issues, it is not legal advice. No warranty is made regarding the applicability of the information presented to a particular client situation, and the information set forth is not a substitute for original legal research, analysis and drafting for a particular client situation.