Proposed Law on Employer Participation in Student Loan Assistance Act
If you’re like most of America, it is not surprise that you may be looking ahead to years of student loan payments – which seems daunting. The good news is that Congress understands. New proposed legislation aims to provide incentives to employers who help employees payback student loans through tax benefits. Pending federal student loan legislation (H.R. 3861) aims to provide an annual tax exclusion to employees if they work for a company that helps them to repay their student loans. This annual tax exclusion could forever change how you pay back your student loans and could help student loan borrowers pay off their debt twice as fast.
Student loan debt has now climbed above $1.3 trillion total, signaling that it is a serious problem not only for borrowers, but potentially for the rest of the country, too. So, how might the proposed legislation help?
New Employees Need Help Paying Down Student Loans, But They Do Not Need the Extra Tax Burden
A recent article in Fortune Magazine highlighted that approximately 25 percent of all working Americans, and about 33 percent of all new millennial employees, do not currently contribute to employee-sponsored retirement funds. For many of these workers, the reason is that they need the extra money to make monthly student loan payments. In response, some companies, such as Natixis Global Asset Management, which was profiled in the Fortune Magazine article, have begun helping employees with student loan payments. Hoping that employees would begin contributing to their retirement accounts, that company created a program in which it would pay $5,000 of an employee’s student loan debt once that employee had been at the company for five years. Every additional year for the next five years, that employee would be eligible for an additional $1,000 annually.
Other employers, too, have begun developing programs aimed at helping workers with student loan burdens. For instance, PricewaterhouseCoopers recently announced its intention to contribute $1,200 annually to student loan debt for its associates. Additional companies across the country, too, have created similar plans. Yet as the article points out, “there’s still a big hurdle keeping it [these programs] from mass adoption: Employees are taxed on the employer payments as if the money were cash income.” As a result, that tax “dilutes the impact of the employer contributions, since the money employees spend on those taxes could—in theory—be used to pay down their student loans even furthers,” the article explains.
Proposed Legislation Would Eradicate Tax Burden of Employee Student Loan Assistance
Here is where the proposed legislation comes in. The “Employee Participation in Student Loan Assistance Act” would have employee contributions to student loan debt treated much the same way as employee contributions to 401(k) accounts. In other words, employees would not be taxed in the present on the employer contributions, but rather those contributions would be deferred for the employee, and the contribution would be tax-deductible for the employer.
If the bill passes, experts believe that more employers would be likely to assist employees with student loans, since they would have a tax incentive to do so.
If you have questions about your rights as an employee, an experienced Florida labor lawyer can assist you. Contact Scott • Wagner and Associates to discuss your options.