The Great Resignation has hit businesses hard over the past year, with low unemployment rates and a high focus on recruitment making it easier for staff to change jobs than any time in the previous two years. Businesses wishing to retain employees are considering a diverse set of benefits to keep them employed and happy in their roles while also avoiding the high cost of new employee recruitment.
A new way that businesses can help employees is with a little-known provision of the CARES Act, which was passed by Congress in 2020 during an acute phase of the coronavirus pandemic. Section 2206 of the CARES Act allows an exclusion of up to $5,250 from an employee’s gross income if an employer pays principal or interest on an employee’s “Qualified Education Loan”. Plainly, the provision allows employers to pay an employee’s student loan up to that amount, and both the employer and employee will not have to pay taxes on that money. While the provision was only designed to be in effect for the calendar year 2020, it has been extended by law through December 31, 2025. That means through the end of 2025, employers can pay $5,250 of an employee’s student loan tax-free each calendar year.
Businesses do not have to pay the entire $5,250 benefit in a calendar year. A business could start with any amount, such as $100/month for each employee, or more if an employer can afford to do so. For educational loan borrowers, even a small amount can make a difference, and there’s a real tax benefit for both the employee and the employer. As of the time of publication, student loan repayment requirements, which had been paused during the pandemic, are expected to resume in August of 2022. Any assistance at all will be a relief for employees for whom student loan repayment is restarting.
Contact your accountant or payroll administrator to learn more about participating in this loan repayment assistance. A small step and investment from you can make a significant difference for your employees with outstanding student loans.