What the Consolidated Appropriations Act of 2021 Means for an Employer's Ability to Make Pre-Tax Student Loan Payments for Their Employees

Posted on February 8, 2021

As employees join the workforce with more and more student loan debt, employee benefit programs that help employees chip away at this debt have become of increased interest to employees. However, the employer side of this equation has remained complicated, with few options available to those employers wishing to assist employees with debt they incurred prior to their hire date.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act temporarily expanded these options, and the Consolidated Appropriations Act of 2021 (CAA 2021) extended the time period of this temporary expansion. As the law stands now, employers are permitted to include student loan assistance of up to $5,250 per year in their Educational Assistance Plans until December 31, 2025.

Practically, this means that employers can pay up to $5,250 annually toward employee’s student loan debt on a tax-free basis, so long as they structure the payments in compliance with IRS rules governing Educational Assistance Plans, which come from IRS Code Section 127.

In particular, in order to qualify as an Educational Assistance Plan and provide tax-free student loan payments, the employer must (or in some cases, should):

Have a written plan document describing the group of eligible employees, the types of benefit offered, and a statement that employees cannot chose between the benefit and cash compensation;
Provide notice to employees that the benefit exists;
Obtain expense substantiation for amounts to be paid under the plan; and
Perform nondiscrimination testing.

For questions on employee benefit programs aimed to address student loan debt, the effects of COVID-19, or for any other benefits matters, contact Iris Tilley or Gabrielle Hansen at 503-228-0500, or at itilley@barran.com or ghansen@barran.com.

Electronic Alerts are written by Barran Liebman attorneys for their clients and friends. Alerts are not intended as legal advice, but as employment law, labor law, and employee benefits announcements. If this has been forwarded to you, and you would like to begin receiving Electronic Alerts directly, please email or call Traci Ray at 503-276-2115. Copyright ©2021 by Barran Liebman LLP.
Las Alertas electrónicas son escritas por abogados de Barran Liebman para sus clientes y amigos. Las Alertas no son proveídas como asesoramiento legal, sino solo como anuncios de leyes de empleo, leyes laborales y beneficios de empleo. Si esto ha sido remetido a usted y quisieras empezar a recibir las Alertas directamente, por favor mándanos un correo electrónico o llama a Traci Ray al 503-276-2115. Derechos de autor ©2021 por Barran Liebman LLP.