Update on Tax-Free Student Loan Assistance

Earlier this year, the CARES Act (H.R. 748, specifically Sec. 2206(B)) made it possible for employer contributions to student loans to be excluded from employees’ gross income up to $5,250/year, so long as the employer adopts a Section 127 Educational Assistance plan.

This legislation enabled employers to offer tax-free student loan repayment for the first time in history. Following passage of the legislation, Peanut Butter templatized a Section 127 plan document making it easy for Peanut Butter client employers to make tax-free contributions.

Employers of all sizes and industries have since been adopting tax-free Student Loan Repayment into their benefits offerings, taking advantage of the unique opportunity to make a difference for their team members.

With the law currently enacted through year-end 2020, and the year-end quickly approaching, you may be wondering: How likely is an extension of this favorable tax treatment?

We’ve been monitoring the conversation, and believe an extension is certainly possible.

Here’s why:

Section 2206(B) of the CARES Act was adopted verbatim from the Employer Participation in Repayment Act (H.R. 1043 / S. 460). Each of these bills has majority, bipartisan cosponsorship and has continued to garner support since introduction in February 2019. Either of these bills may be enacted by year-end 2020, which would make permanent the tax-free treatment of employer sponsored student loan contributions.

The CARES Act, including Section 2206(B), may also be extended (in part or in whole) beyond the current sunset date of 12/31/20 by way of an extender package.

It is Peanut Butter’s opinion that bicameral, bipartisan support for this measure, currently in writing by a majority of Congressional members, indicates a good chance that the tax-free treatment of employer-sponsored student loan contributions will be extended beyond 2020.

Whether or not the tax-free treatment is extended or made permanent, Peanut Butter will provide guidance and support to all client employers. If and when any adjustments need to be made, Peanut Butter will notify employers and work with them to update their accounts.