Tax Reform, COVID-19

CARES Act and Employer-Provided Education Assistance

The CARES Act added a provision to an existing code section that allows an employee to receive, on a tax-free basis, up to $5,250 each year from his or her employer for expenses associated with a “qualified educational assistance program”.  This assistance includes certain expenses associated with any form of instruction or training that improves or develops an individual’s capabilities, whether or not job-related.

The CARES Act expands the definition to include payments made before January 1, 2021, by an employer to the employee or the lender for qualified educational loans, whether or not the employee is currently enrolled. In short, you may pay student loan debt up to $5,250 for employees for this year only, and it is tax free to them.

The educational assistance must be provided under a separate written plan that is distributed to your employees, and meets a number of conditions, including nondiscrimination requirements. For example it cannot discriminate in favor of highly compensated employees.  In addition, not more than 5% of the amount paid may be provided for the class of individuals who (including their spouses or dependents) own 5% or more of the business.

No deduction or credit may be taken by the employee for any amount excluded from the employee’s income as an education assistance benefit.

In addition to, or instead of, applying the $5,250 exclusion, an employer may satisfy an employee’s educational expenses, on a nontaxable basis, if the educational assistance is job-related (i.e. continuing education requirements).  To qualify as job-related, the educational assistance has to:

  • maintain or improve skills required for the employee’s then-current job, or
  • comply with certain express employer-imposed conditions for continued employment.

“Job-related” employer educational assistance is not subject to a dollar limit and is excludable from an employee’s income as a working condition fringe benefit.

If you have any questions or would like to discuss this further, please contact us.

You can stay up-to-date on many of the relief options and tax impacts as they relate specifically to independent pharmacies through our coronavirus advisory page.

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