Employers may offer their employees a range of tax-free educational benefits through an IRC Section 127 Qualified Educational Assistance Programs (QEAP) including tuition, fees, and textbooks. Under the Coronavirus Aid, Relief, and Economic Security (CARES Act) enacted on March 27, 2020, for a limited time from the date of enactment through December 31, 2025, employers may offer QEAPs to help employees repay student debt. The education does not have to be work-related but the student loan must be for the employee’s own education. Absent guidance to the contrary, student loan repayment benefits should be presumed subject to the same requirements as other benefits provided under a QEAP.

What are the requirements of a QEAP?

  • Provide benefits exclusively to employees
  • Provide only “qualified educational assistance benefits”
    1. This does not include expenses for education related to sports, games, or hobbies or expenses for meals, transportation, lodging, or retainable supplies and equipment other than textbooks
  • A separate written program established by an employer and disclosed to employees
  • No choice: employees cannot choose between educational assistance benefits and cash
  • Does not discriminate in favor of highly-compensated employees or provide more than 5% of total annual benefits to more-than-5% owners (based on eligibility requirements, not utilization)
  • For Student Loan Repayment assistance, the benefit must be applied to a “qualified education loan” covering tuition, fees, or room and board expenses for a degree program at an accredited post-secondary institution
  • The maximum amount of nontaxable education assistance an employer can provide to an individual is $5,250 in a calendar year. Any additional amount is taxable to the employee

How is a Student Loan Repayment QEAP administered?

  • A separate written plan document should:
    1. Define which employees are eligible (e.g., full-time employees, minimum length of service, or job type);
    2. Describe the type of benefits offered;
    3. Define plan year (e.g., calendar year);
    4. Describe the maximum amount of benefits offered per plan year;
    5. Describe procedures and deadlines to substantiate the student loan expenses and claim benefits (e.g., submission of an Education Benefits Request Form);
    6. Describe how payments will be made (i.e., to employees or directly to lender);
    7. Describe how leaves of absence will be handled;
    8. State whether full or partial repayment to the employer is required if employment terminates within a certain period after receiving benefits (note some states limit deductions of required repayments from employee’s pay); and
    9. State the employer administers the QEAP with sole discretionary authority to interpret the QEAP, including making final and binding eligibility and benefit determinations;
    10. State the employer reserves the right to amend or terminate the QEAP at any time.
  • Paying benefits solely from general assets rather than creating a separate account or trust avoids triggering ERISA
  • Reasonable notification of the availability and terms of the QEAP should be provided to employees
    1. This can be done by distribution the QEAP plan document or by creating a separate document describing the QEAP

This InfoBrief is provided for educational purposes only. Employers should consult with their tax advisor and legal counsel for advice on tax reporting and withholding requirements, state law, and other particular circumstances.

 

Last updated October 1, 2021