Carrying on our tradition of providing you with Solutions Beyond the Obvious, we are pleased to bring you our “Ask the Experts” series of articles. In these articles, our Tronconi Segarra & Associates tax experts identify and explain the significant tax changes that were passed as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act which can provide additional relief for businesses and individuals facing economic hardship as the result of the coronavirus pandemic. Contact your Tronconi Segarra & Associates tax advisor for more information about any of the topics discussed in these articles.
Lisa A. Mrkall, CPA, MBA
Employer-paid tuition assistance is a benefit offered by some employers. Employees receiving assistance can exclude up to $5,250 per year from federal income taxes. Before the CARES Act, eligible education expenses included only tuition and fees, books, supplies and equipment that could be excluded from income by the employee. The CARES Act expands the definition of educational assistance to include student loan repayments. Payments of principal and/or interest by the employer to the employee or to the lender will be tax-free to the employee. The limit remains at $5,250 and the benefit remains in effect only until December 31, 2020.
Individuals with student loans owned by the US Department of Education are also impacted by the CARES Act. Under the new law, there is a temporary forbearance on payments of certain student loans between March 13, 2020 and September 30, 2020. No student loan payments are required to be made on these loans during this time period. Additionally, the interest on these federal student loans is reduced to zero percent during this same time period. Private student loans and federal student loans not owned by the US Department of Education are not covered by the CARES Act. Eligible loans include:
- Loans made under the William D. Ford Federal Direct Loan Program (Direct Loans)
- Some Federal Family Education Loan Program (FFELP) made prior to 2010
- Some Federal Perkins Loans
If you are unsure who owns your loan, review the list of student loan servicers for loans owned by the Department of Education. If your loan is not owned by the Department of Education, there may be options available through your servicer including reduced interest rates and temporary suspension of payments. Steps taken to consolidate loans should be carefully considered as they may result in adverse consequences. Last, if you can continue to make payments on your loans and they are owned by the US Department of Education, those payments will be applied toward the principal of your loan, reducing overall interest paid and accelerating the loan payoff.
If you are an employer, employee or borrower in need of further assistance on these benefits extended by the CARES Act, please do not hesitate to contact your tax advisor at Tronconi Segarra & Associates. If you do not have a Tronconi Segarra & Associates tax advisor, please call 716.633.1373 or Contact Us through our website with your question.
This article has been prepared for general guidance on matters of interest only; it does not constitute professional advice. You should not act upon the information contained in this article without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy of completeness of the information contained in this article; and, to the extent permitted by law, Tronconi Segarra & Associates LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this article or for any decision based on it.