Be in the know… SLRP

What is SLRP and why do I care?

I recently had a new client come into my office, a veterinarian. After some tax planning sessions, we set her up as an S Corporation.

She started talking about SLRP’s and if I knew anything about this. Knowing that the government likes to abbreviate all their acts, I knew it was not the sound I would get mad at my daughter for making while she was drinking.

What is an SLRP? SLRPS stands for Student Loan Repayment Programs. Employers contribute a fixed amount per month to their employee’s student loans. The employee must continue to make their monthly payments as well. With the outstanding U.S. student debt growing daily to approximately $1.7 trillion, this is a good incentive for employers to attract college-educated employees. The downside, both the employer and employee will have to pay taxes on it.

In comes a less highlighted provision in the CARES Act.

From March 27 through December 31, 2020, the CARES Act expands tax code Section 127 to allow employers to reimburse employees up to $5,250 for must student loan payments, which can be excluded from taxable income. Even though short-term, there is talk that this may be a permanent change to the tax code Section 127.

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The new law states:

· The payments must be for a student loan for the employee, not for their children or spouse.

· The rules for education-assistance programs under Section 127 will apply. The employer must adopt a written plan describing the benefit and communicate the terms with the employees and the plan cannot favor highly compensated employees.

This law also allows holders of most federal student loans to suspend their monthly payments through September 30, 2020, without any additional interest accruing.

Most taxpayers, because of their income, never get to write-off the interest on their student loans.

Tax planning has always been essential for businesses and individuals but in uncertain times it has even become more pressing!

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