A study assistance program can bring many benefits

A class act

By Keara Moulton

Educational assistance programs allow staff members to access learning opportunities to acquire new skills and maintain current knowledge in their field with the financial assistance of their employer.

This is a common benefit offered to employers, but not all business owners may be aware of the current opportunity to expand this offer.

Keara Moulton

“Whether your company already has an education assistance program or you’re planning to offer one soon, this can be a great recruitment and retention program.”

The 2020 CARES Act included an expansion of Section 127, which allows employers to make expense payments on employee student loans in addition to previously allowed payments on tuition, fees, books, and materials. stationery. This extension was extended until December 31, 2025 by the Taxpayer Certainty and Disasters Tax Relief Act.

Whether your company already has an education assistance program or you are planning to offer one soon, this can be a great recruitment and retention program. With the expansion to include public and private student loan payments toward principal and interest, employers have the opportunity to provide educational assistance not only to employees currently enrolled in courses, but also to recent graduates who are already completing monthly payments using their post-income tax.

To qualify as an education assistance program, the plan must be in writing, available to all employees, and specify what the money can be used for. The company can either pay the educational institution or student loan servicer directly on behalf of the employee, or pay the employee directly, and then optionally request a receipt for the employee’s payments if their specific written plan l requires.

If the total Educational Assistance Payments are less than $5,250, the employee will not be taxed on this additional benefit. However, if payments for tuition and loan assistance exceed $5,250, then the employee will pay taxes on the excess, as it will now be included in Box 1 of their W-2.

Recently, a local business contacted us to inquire about the potential implementation of an education assistance program that takes advantage of this extension of Section 127. One of their main questions was “is something you think we should offer employees knowing that we manage payroll in-house using QuickBooks?’ The ease of handling this pre-tax contribution will vary depending on the type of QuickBooks product the business uses (i.e. desktop or online).

QuickBooks payroll will need to be set up to accept and track payments by going through the CARES Act section to check off applicable payroll items to include. With this extension available until 2025, your employees can benefit from it for more than three years if your accountant can now adapt your program to your payroll system.

This fringe benefit means that employees who receive this money will not be able to claim any non-taxable education expenses (the amount received less than $5,250) as the basis for another deduction or credit on their 1040 tax return. This includes lifetime education credit and student loan interest deduction. However, the Lifetime Learning Credit is limited to a maximum of $2,000 per return and is non-refundable. In other words, the employee could use the credit to pay any tax owing, but they would not receive any part of the tax credit as a refund.

This credit is also removed completely if the employee has an adjusted gross income greater than $69,000 as a single filer or $138,000 if married and filing jointly. In addition, the student loan interest deduction is limited to $2,500 and is phased out if adjusted gross income exceeds $85,000. With the income limits in place on credits and deductions currently available to individual students and student borrowers, this extension to Section 127 has the potential to benefit a broader base of employees than credits and deductions. .

If you have any questions about how this might affect your education assistance program or any other program, deduction or credit, please contact us for detailed tax advice. you

Keara Moulton is a partner at the Holyoke-based accounting firm Meyers Brothers Kalicka, PC

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