Assisting employees who are struggling with student loan debt is an emerging priority for many employers. Following the Internal Revenue Service’s release in August 2018 of a private letter ruling, widely thought to have been requested by Abbott Laboratories, that permits the employer to “match” student loan repayments in the company’s 401(k) plan, there have been bills introduced in Congress that would allow employers to give their employees money pre-tax to ease their student loan burden. Now, there is a new state level proposal that would offer a tax credit to Connecticut businesses that make student loan assistance available to their employees.
Currently, if an employer wants to repay a portion of its employee’s student loans, such repayment would be treated as taxable compensation to the employee. There were two bills introduced in Congress that would convert these amounts to pre-tax contributions, either through an employer contribution of up to $5,250 annually to an educational assistance program under Code section 127, or through a matching contribution to a 401(k) or 403(b) plan. Neither has yet been passed into law. Connecticut is now addressing this national trend in Senate Bill 435, An Act Establishing A Tax Credit For Employers Making Education Loan Payments For Employees (“the Student Loan Tax Credit Bill”).
The Student Loan Tax Credit Bill would create a tax credit, beginning in January 2020, that would equal 50 percent of the student loan payment made by the employer on an eligible loan. An employer could make student loan repayments on behalf of qualified employees (those who work at least 35 hours per week, are Connecticut residents and are not owners, members or partners of the employer) and claim a tax credit for those repayments, against their Corporation Business Tax or Insurance Premium Tax. The credit could be for up to 36 months of loan payments.
The Student Loan Tax Credit Bill recently passed out of the Higher Education and Employment Advancement Committee and was referred to the Committee on Finance, Revenue and Bonding on May 8, 2019. Stay tuned for further details if the Bill progresses.