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Employer payment of student loans

SGS
Level 1

If an employer repaid $1,000 of student loans but included it in W-2 wages, how do you deduct this amount as it is not supposed to be taxable under the CARES Act?  Or should the employer be revising the W-2?

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7 Replies 7
qbteachmt
Level 15

It's not going to apply to all payments for all loans. It has to qualify. The qualified loan, the payment date(s), etc.

See this:

https://www.irs.gov/forms-pubs/exclusion-for-certain-employer-payments-of-student-loans

 

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SGS
Level 1

Thanks for the reply.  The original loan was for college education and it appears they meet the requirements of the CARES Act for this repayment to not be taxable to the employee.  The employer even lists the repayment as an educational assistance loan repayment on the year-to-date payroll summary as a deduction, but it is still included in gross pay in box 1 of the W-2.  I just don't see a place to offset the inclusion of the $1,000 included in earnings.

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qbteachmt
Level 15

Either the employer knows the loan does not qualify (it's not just any college or even just any loan). Or, they made a payroll mistake. You would check with the Employer.

If the employer "did it right" (from their perspective) and if the W2 calculations show it was treated as fully taxable, as if that is being treated as a Bonus, then I would treat it as if the Employee made their own payment, because it was made with their post-tax takehome pay. That seems to be what you are describing. I call this, "The employer did the banking." But paid with Employee funds.

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SGS
Level 1

Thanks again.  I am trying to find out a little from the employer's perspective.  They are saying something about treating this as an education cost similar to books and trying to take a deduction this way.  But I think they just did not fix their system om 2020 to treat these repayments as nontaxable income, but apparently plan to do so in 2021.

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qbteachmt
Level 15

"They are saying something about treating this as an education cost similar to books and trying to take a deduction this way."

Isn't that great, the employer is doing your job for you?

Paying down debt isn't the same as being currently in school. Debt is not Books. Debt is not Tuition. Debt is Debt.

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SGS
Level 1

I agree.  I told the taxpayer that same thing and provided some background on how student loan repayment by the employer is supposed to be treated.  We'll see if we get anywhere on getting this corrected.

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BobKamman
Level 15

Schedule 1, Line 8, as a negative number.  

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