WASHINGTON — It's been more than eight months since Congress passed the Coronavirus Aid, Relief and Economic Security Act, or the "CARES Act." The act provided direct economic relief to Americans, including direct payments, assistance for businesses and help for healthcare workers.
But this week a tweet from Lynnette Khalfani-Cox, the self-proclaimed "Money Coach," went viral across Twitter, Facebook and Instagram with a tip: that the CARES act allows your employer to pay off $5,250 of your student debt.
Many people were confused why they'd never heard of this, so the Verify team is here to break it down.
Can my employer pay $5,250 of my student debt because of the CARES Act?
Yes, if your employer had an Education Assistance Program or a similar program at the start of 2020. Here's what that means.
According to the IRS, section 2206 of the CARES Act "expands the definition of educational assistance...to include certain employer payments of student loans paid after March 27, 2020, and before January 1, 2021."
Previously, a company that has an educational assistance program could help employees pay for some form of education up to $5,250, excluded from income. The CARES Act is allowing employees to instead use that money to help pay student debt.
"Instead of them paying your tuition or for books and course fees, they would be paying towards the principal or the interest of your student loan." Cari Weston says this money isn't just coming out of nowhere. "It's really just a redirect of an existing education program."
Weston says it's also true that it is not taxable income to the employee and the employer will get a tax break depending on the rate the company is usually taxed at. The tax break is not uniform for all employers.
"As a general rule, they are going to get a tax deduction for anything that they pay that's a qualified expense, an ordinary or necessary business deduction at the rate that the company is taxed at," Weston explains.
So while we can verify that the CARES Act makes student debt assistance legal, it doesn't mean every employer will take part. It is completely voluntary.
A Morgan Stanley article written in June says before the pandemic, only 4% of employers had some form of student loan repayment assistance.
Even among the companies with a program, what they cover can vary. Weston says it's best to check with your employer about education assistance and whether you are eligible to take part.
"I'd say start with H.R., H.R. should know who to direct you to," Weston advises. "And then if you're a smaller company, I would say go to the owner of the company."
A final bit of advice from Weston: If your employer is helping to pay off student loan interest, make a note of it on your tax returns.
"There's an above-the-line deduction of up to $2,500 on your tax return for student loan interest," Weston explains you need to make sure you're not claiming to have made the payments that your employer did. "You can't take a deduction for it if you didn't pay it."