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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10894
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I have a small LLC business in the state of Arkansas.

Customer Question

Hello. I have a small LLC business in the state of Arkansas. Recently some employee candidates have asked me about the option of student loan reimbursement as a benefit to them. Can you tell me what the benefits are to me as an employer (if any) and how that is setup as a payroll benefit.
Thank you
Submitted: 4 months ago.
Category: Tax
Expert:  Lane replied 4 months ago.

Hi. My name's Lane. I can help with this.

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While up to $5,250 per year ​can be provided tax-free to the employee for tuition reimbursement, student loan reimbursement under current IRS regulation is taxable to the associate.

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Employers are also entitled to a deduction of up to $5,250 for tuition reimbursement paid on behalf of the employee, but no similar incentive for student loan reimbursement yet exists.

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At the federal level, the proposed Student Loan Repayment Assistance Act would make student loan repayment like a 401(k) plan, where the employee determines how much she would like to pay toward her student loans on a monthly basis, but this has very little chance at this time, becasue of the costs involved.

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In terms of getting this set up, you may want to look at a company such as this which facilitates paying the loans directly.

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But simply paying an amount deemed to be income (as part of a compensation package for what an employee brings to the table) as either additional compensation and earmarked or withheld and paid directly to the loan are options.

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Please let me know what questions you have from here.

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lane

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If this HAS helped and you DON'T have other questions Your positive rating … (by using those the stars or faces on your screen, and then clicking “submit”) …would be appreciated!

Otherwise I receive no compensation for the work.

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Thank you,

Lane

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I hold a law degree, with concentration in Tax Law, Estate law & Corporate law, a Master’s Degree, with specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986

Customer: replied 4 months ago.
Thank you for the answer. So basically its would just be considered additional income and taxed as normal? Or if it were to be paid directly to the loan by us on the employees behalf it would show as additional income on w-2 correct? And if in this case since it wasn't paid directly to the employee they would show it on their personal taxes via w-2 but there would be no FICA withholding on either employee or employer side? What I am trying to determine is if this is a better incentive for employment instead of a straight up sign on bonus that both of us pay FICA withholding on so the bonus is lessened.
Expert:  Lane replied 4 months ago.

That's right, as of now it's considered taxable income.

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(Whether you paid directly or simply increased the physical dollars to the employee, it's additional compensation in box 1 of the W-2)

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And so sorry, because in this type of arrangement (where there's no tax relief at all you are deemed to be simply paying on behalf OF the student so, as of now, you'll need to withhold and match the SS & Medicare as well)