The Coronavirus Aid, Relief and Economic Security (CARES) Act has provided a wide range of programs that affect employee benefit plans, employers and employees. One benefit that has flown under the radar is a new, temporary tax-qualified student loan repayment plan. Section 2206 of the CARES Act allows employers to claim a tax deduction for repayments of employee student loans, and allows employees to exclude these payments from taxable income, in amounts up to $5,250 a year. In essence, the CARES Act treats student loan payments as an education assistance fringe benefit. Normally, such benefits may be paid only for (i) books and equipment, (ii) tuition and fees, and (iii) necessary school supplies. The CARES Act adds employer student loan repayments made on or after the effective date of the CARES Act (March 27, 2020) through Dec. 31, 2021.
Practically speaking, we have seen little interest from employers to adopt such a plan. That is probably because employers, like everyone else, are currently doing what they can to conserve cash, including suspending matching and profit sharing contributions to qualified retirement plans. Continue Reading