CARES Act Authorizes Limited Employer Repayment of Student Loans

by | May 27, 2020 | Income Tax

By Jeff Chang

Public agency employers trying to recruit or retain highly skilled or highly paid younger workers (e.g., doctors, nurses, IT specialists, engineers) may want to take advantage of a limited employer-paid benefit under the CARES Act. This limited-time benefit, which is only available during 2020, can be a win-win for employers and employees because it is not taxable to the employee and it is not counted for payroll tax purposes for public agencies that do not contribute to Social Security.

This less-publicized provision of the Act allows employers to pay or reimburse any “qualified education loan,” as defined in the Tax Code, up to $5,250 during the remainder of 2020 under an educational assistance program. Of course, as with most specially taxed employee benefits, there are a few requirements:

  • There must be a separate written educational assistance plan.
  • The plan generally must benefit employees, or former employees, of the employer.
  • Employees eligible to participate must be given notice of the program and its terms.
  • Certain nondiscrimination rules apply. Generally, this means that public agencies will not be able to provide this benefit solely to “highly compensated employees” – those making more than $130,000 per year. Even if your agency’s target audience for this benefit is higher paid, your agency should be able to design a program that benefits those above and below the HCE threshold. For union employees, the rules allow agencies to exclude them from a plan design if that is preferred. Because of the potential complexity of these rules, interested employers must obtain appropriate assistance with plan design and compliance.
  • There is also a limitation on total benefits to shareholders and owners – however, this should have no application in a public agency context.
  • The $5,250 loan repayment limit is reduced by any other educational assistance program benefits that an agency has provided to an eligible employee in 2020.

Although many employers are struggling to keep from laying off or furloughing their employees, some employers, like health care districts and agencies that are tech-heavy, must continue to recruit (and retain) well-educated workers. Often, these potential employees are carrying large amounts of higher education debt. The benefit described above may not in and of itself carry the day, but may make the difference when everything else is more or less equal.

Jeff Chang is a partner at Best Best & Krieger LLP. He has four decades of experience skillfully evaluating benefit and retirement plan compliance to achieve maximum outcomes for public agency clients throughout California. He can be reached at or (916) 329-3685.

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