Among the COVID-19 relief provisions in the CARES Act is an expansion of the income and wage exclusions under Section 127 of the Internal Revenue Code to allow employers to make student loan payments on behalf of their employees. Generally, Section 127 educational assistance programs allow individuals to exclude from gross income up to $5,250 of qualified educational assistance furnished by their employer during a calendar year. Qualified educational assistance programs allow reimbursement of a broad range of educational expenses, including fees for graduate-level courses. The CARES Act expands the definition of “educational assistance” to include principal and interest payments on pre-existing student loan debt. This relief only applies to loan payments made between March 27, 2020, and December 31, 2020, and the maximum wage and income exclusion continues to be $5,250.
Employers who wish to provide this limited-time benefit should work with legal counsel to update their written educational assistance program documentation to include student loan payments as eligible expenses.