I’m Stashing My Refund In A High
The first thing I did when my refund money hit my bank account was to transfer it to a high-yield savings account, separate from my other finances. I don’t have debit card access to this account, which is a tip I recommend if you want to avoid the temptation of dipping into any of this money.
Right now, online high-yield savings accounts are earning over 3% annual percentage yield, so I figure I can also earn a bit of interest while my money sits. It won’t make me rich by any means, but it’s better than putting it in a traditional bank’s savings account that would only pay me pennies on my money.
Consider Your Employee Demographic
At M3, we dont believe that there is one best solution for every companys benefits strategy it really comes down to the demographics of your employees, their social determinants of health, and what desire these factors create for certain types of benefits.
For example, generationally speaking, there are differences between the kinds of financial benefits that an employee may look for. While mid-to-late career individuals may want 401 matching contributions, weve seen younger employees increasingly ask for assistance with student loan assistance for financial security.
A Deep Dive Into Student Loan Repayment Assistance
Student loans are back in the headlines with the announcement of targeted loan cancelation. With so much change on the horizon, you may be wondering how the new plans for student loan repayment impact Student Loan Repayment Assistance . Is it still something employees need or want? Is it still a benefit employers should pursue?
Lets take a refreshed look at the basics of SLRA, as well as some of the most recent data and most compelling reasons why adding an SLRA perk to your benefits package is as important as ever.
What is Student Loan Repayment Assistance ?SLRA is one of the fastest growing benefits to help employers recruit and retain top talent. Employers realize student loan debt is a burden to employees. By addressing it, theyre proving they can support employees while also achieving business goals. However, SLRAs newness and employers unfamiliarity with its legislation has resulted in misunderstandings about how SLRA works.
Repayment assistance can include multiple points of support. Employers can offer expert loan counseling, a refinancing referral program, or make supplemental contributions to a 401k. In this article, we’re focusing on an employer contribution toward an employee’s outstanding student loan balance.
What is a Qualified Education Loan for this purpose?Both private and federal education loans obtained to pay for specific higher education expenses including tuition, fees, room and board, books, supplies and other necessary expenses are covered.
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Student Loan Repayment Programs: Now Tax
Through 2025, employers can offer up to $5,250 in student loan repayment benefits without paying a dime in tax. This is thanks to the Consolidated Appropriations Act, signed into law late 2020 as part of pandemic relief efforts, which expanded Section 127 of the IRS code. The number of companies offering repayment programs is still small, but likely to rise going forward, especially after the current moratorium on student loan repayment ends May 1, 2022.
What Is Employer Student Loan Repayment
Student loan assistance from employer is an employee benefit where the employer makes payments to pay for part or all of an employees student loans. Employers can either make payments to the employee or the student loan lender directly.
Prior to March 2020, student loan repayments of any amount were taxable. That all changed with the Coronavirus Aid, Relief, and Economic Security Act.
In addition to establishing the Paycheck Protection Program and Employee Retention Credit, the CARES Act made employer student loan repayments tax-free until the end of 2020. And in December 2020, the Consolidated Appropriations Act extended the tax-free program through December 2025.
The bottom line: Employers can make tax-free student loan payments until December 31, 2025, unless future legislation extends the deadline.
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How Long Does This Tax Benefit Last
For now, these tax changes are only set to remain in effect until December 31, 2025. So to take advantage of these incentives, people will need to start going back to work this summer. This tax incentive is basically rendered useless while you’re unemployed .
But it’s important to point out that the CARES Act has also temporarily suspended payments and interest on federal student loans. The pause on payments will remain in effect until August 31, 2022 .
Federal student loan borrowers can take advantage of the pause in payments until September when they’ll hopefully be in a position to advantage of the tax-free employer student loan assistance from October – December.
Unfortunately, private student loan borrowers do not qualify for the CARES Act 6-month payment pause. So if you have private student loans, it would be in your best interest to begin participating in your company’s LRAP program as soon as possible.
I’m Making Monthly Payments
If the student loan forgiveness program remains blocked indefinitely or doesn’t get implemented at all, then I’m going to owe $14,000 left on my student loans . Until I know for sure, I plan to make student loan payments to myself, rather than to the student loan company. In other words, instead of paying my loan servicer hundreds of dollars per month, I’m putting that cash directly into the high-yield savings account where my refund is.
I’m doing this for a few reasons. First, there’s no reason to make payments while the payment pause is in effect and forgiveness is a possibility. But since I can afford to make student loan payments right now — and I had been gearing up just in case payments resume in January — building up my savings feels like a smart move.
This way, if my debt isn’t forgiven, I can make an even bigger dent in my remaining balance when payments resume. And if forgiveness does go through, I’ll have money set aside to pay the taxes I’ll owe on my debt relief, since I live in a state that will levy state and local taxes on my forgiven loan amount.
If you can afford to make monthly payments to yourself while student loans remain on pause, I recommend it. Then, even if loan forgiveness is approved, you’ll have a nice emergency savings fund or additional funds at your disposal.
Keep following CNET for the latest news on student loan forgiveness.
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Which Companies Provide Student Loan Repayment Benefits
The number of companies offering student loan benefits is small but growing, according to Carlisle. Benefits provider Goodly has a searchable database of employers that offer student loan assistance, as does remote-job listing site Flexjobs. Below is a sample of some well-known employers and the loan benefits they offer.
How Widespread Is Student Loan Assistance As A Job Benefit
Craig Copeland, director of wealth benefits research for the nonprofit Employee Benefit Research Institute, said there was major interest in student loan benefits before the pandemic.
“COVID kind of paused everything, with companies focused on emergency situations and health care,” Copeland told CNET. “Now, the focus is coming back around.”
Uptake is still slow, and legislation is only now coming that makes it easier for companies to provide student loan repayment assistance, he said.
From 2014 to 2016, only 4% of companies offered such benefits, according to the Society for Human Resource Management, a figure that doubled to 8% in 2019.Tuition reimbursement remains a much more common perk, offered by 71% of employers according to data from U.S. News & World Report. In large part that’s because, until recently, student loan assistance wasn’t eligible for a tax break the way tuition reimbursement is.
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Your Employer Can Pay $5250 Per Year Directly To Your Federal Student Loans
At the beginning of the pandemic, the CARES Act was passed to get economic aid to Americans fast, including stimulus checks and money for small businesses. But one section of the legislation didn’t get quite as much attention: Section 2206, which allows employers to make up to $5,250 in tax-free annual payments directly to their employees’ federal student loans.
Employers were able to offer this kind of benefit long before the pandemic. According to the SHRM Employee Benefits Survey, 8% of companies nationwide offered student loan repayment assistance in 2019 and 2020. The main difference under the CARES Act is that employers’ contributions are completely tax-exempt. That means employees won’t pay tax on this added “income,” and employers don’t owe payroll taxes on these funds.
The CARES Act was only supposed to be in place for 2020, but under the 2021 Consolidated Appropriations Act, the combined spending bill and continued coronavirus relief funds, this provision has been extended until December 31, 2025.
Tax strategy and benefits lawyer Joseph P. Yonadi, Jr. at Squire Patton Boggs LLP says the $5,250 annual student loan repayment assistance is an added benefit on top of an employee’s salary, health insurance, and retirement benefits, meaning this isn’t money that comes out of your paycheck it’s cash from your employer that goes directly to your loans.
Why Should You Consider Paying Your Employees Student Loans
An employer paying student loans may seem like a random benefit. After all, you dont directly make payments for your employees other liabilities, like their mortgage or car loan. But unlike your employees other liabilities, student loan repayment is a tax-free employer benefit.
One in eight people in the United States has student loan debt. Due to large loans and high interest rates, student debt can make it difficult for employees to pay their other liabilities.
And if you cant afford to give employees raises, adding tax-free benefits like student loan repayment might be the way to go.
You might consider implementing an employer student loan repayment program to:
- Retain employees
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Employee Recruitment And Retainment
An ASA survey revealed that 86% of recent grads would make a long-term commitment to an employer who helped them pay back their student loans. It also revealed that student loan repayment as an employee benefit was the third most important benefit to those surveyed, following health insurance and 401k packages. However, student loan repayment as a benefit was not made available to 74% of those surveyed.
Benefits that attract and retain talent are in the financial interests of a business. Another study by CAP estimates it costs between 1030% of an employees salary to replace them due to turnover. These percentages also climb with the title and total compensation of the position.
Offering student loan repayment as an employee benefit is a way to reduce employee churn and make your job openings more attractive in a highly competitive job seeker market.
Can You Combine Tax
Yes and no. The CARES Act provision modifies the existing Section 127, which permits an employer to pay up to $5,250 of an employees qualified educational expenses with the payment being tax-free to the employee.
This is now a combined limit. Thus, an employer could pay $3,000 towards an employees Masters degree and another $4,000 of the same employees student loan payments each year through 2025. But the maximum amount that will be tax-free to the employee is $5,250.
Also, you cannot deduct the interest on student loans to the extent that it is paid on a tax-free basis through either of these programs. Learn more about the student loan interest deduction.
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There Must Be Other Fine Print Though Right
Well, yes. Because private student loan repayment assistance is offered by the employer, no two programs are exactly alike. The company you work for could limit the amount of aid it offers and to whom. You might have to work for the company for a certain number of years, for example, like how many employers contribute to 401s but have vesting periods that span years.
Additionally, the $5,250 tax-free aid is for all education-related benefits in the workplace, so you might not be eligible for tax relief on the whole bag if youve already received, say, a tuition reimbursement in the same year. Also, your spouses or childs student loan debt might not be eligible for assistanceeven if your employers program covers their debt, too, it would be considered taxable income by the IRS.
What Loans Qualify
An employees loan qualifies for repayment if they took out a loan to pay qualifying education expenses that were:
- For themselves, their spouse, or a dependent
- Paid or incurred within a reasonable period of time before or after taking out the loan AND
- For education provided during an academic period for an eligible student
You cannot give employees tax-free student loan repayments for loans they took out from a relative or qualified employer plan.
For more information, see IRS Publication 970.
The bottom line: Only qualifying student loans are eligible for tax-free status.
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Want To Invest In The Future Success Of Your Business Invest In Your People
We live in a new age that still has ties to past ideologies and work styles. Businesses that do not adapt to the work styles and problems of today will have a hard time thriving in the future. Its apparent that well-rested and emotionally happy people are the most productive. However, some businesses still gauge an employees productivity by how little they take vacation and how many hours they spend behind the screen, regardless of the work theyre doing. Its almost as if looking busy is more important than the actual work. Other employees who do work demanding hours and remain focused on their current tasks would have a better output with more rest.
The same philosophies go into salary and benefits offerings. Times have changed and the benefits of yesterday dont paint a full picture of todays societal needs. Just like rest and emotional well-being lead to more productivity, so does securing financial stability. Its harder to reach financial stability when debt was an outcome in pursuing a higher education needed to eventually land a job. An employee benefit that has been gaining popularity is student loan repayment. Student loan repayment as an employee benefit has tax, recruiting, and cultural advantages. Our vision at Spair is a world where student debt isnt a lifelong burden.
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What Is The Tax
You can give each employee up to $5,250 per year toward student loan payments. Do not include this amount in the employees income.
Keep in mind that the tax-free amount of $5,250 is the combined limit for loan repayment and other types of education assistance under Section 127 of the Internal Revenue Code.
Include any amount you give an employee over $5,250 in the employees income . Amounts over the tax-free limit are subject to taxes.
The bottom line: Is employer student loan repayment taxable? Noup to $5,250 per employee.
Consider Specialized Areas Of Your Workforce
Companies that want to ease into this emerging market may want a program designed to target a specific segment of their workforce. Having trouble recruiting in critical staffing areas? Experiencing high turnover within a certain class of employees? These situations are a perfect test market for a student loan repayment assistance program, with employer-defined eligibility parameters based on the class of employees your company is looking to recruit or retain .
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Student Loan Repayment: Another Benefit Of Working At Seer
If youre like me you can understand the burdens that they place. Having to say no to nights out, vacations, a new pair of sneakers, etc. can be draining and sometimes embarrassing.
At Seer, we donate $36,000 each year to teammates who have student loans through our Student Loan Repayment program.
Can we just take a minute to let that sink in? As you can imagine, Seer Student Loan recipients are incredibly thankful for this program.
Companies That Offer Student Loan Repayment Benefits
|Peloton will contribute $100 a month through Gradifi toward employees’ student loan payments.|
|Penguin Random House||Working with Gradifi, the book publisher offers full-time employees who have been with the company for one year up to $1,200 annually in student loan repayment benefits, with a cap at $9,000.|
|PricewaterhouseCoopers||PwC associates can receive up to $1,200 a year toward their student loans for up to six years, or until they’re promoted to a managerial role.|
|SoFi||Since 2016, SoFi employees have been able to get $200 per month applied toward their student loans, with no annual or lifetime cap.|
|Staples||The office-supply company is working with Tuition.io to offer $100 a month of student loan repayments to “top performers” nominated by their managers, with a cap of $3,600. The benefit is also available to new hires on Staples’ business-to-business sales team.|
|Western Union||Since 2017, eligible employees at Western Union can receive $50 monthly contributions toward the principal balance of their student loans. Contributions are sent via Gradifi directly to the employee’s loan provider.|
Some companies have no strings attached for the loan repayment benefit, while others might require a certain amount of time at the job or cap assistance at a certain dollar amount. Still, 86% of workers said they’d stay at a company for five years if it meant being able to take advantage of a student loan repayment program.
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