24 Apr COVID-19 Employee Assistance
COVID-19 Employee Assistance: What Else Can Businesses Do To Help Their Employees?
Employer-Provided Tax-Free Disaster Relief Benefits
On March 13, 2020, President Trump enacted the Robert T. Stafford Disaster Relief and Emergency Assistance Act, authorizing him to declare the COVID-19 epidemic a national emergency. By doing so, he created an opportunity for employers to provide tax-free financial assistance to their employees through these difficult times caused by the coronavirus pandemic.
Under Section 139 of the Internal Revenue Code, employers are allowed to provide tax-free payments or reimbursement to affected employees as qualified disaster payments. These payments or reimbursements include any of the following as they are attributable to this qualified disaster:
- Any reasonable and necessary personal, family or living expenses (e.g., cleaning products for sanitation, face masks, etc.)
- Any reasonable costs incurred for the creation of a suitable work-from-home environment (e.g., home printer purchase, increased utility costs, expanded internet access, etc.)
- Any COVID-19 medical expenses not reimbursable under insurance (e.g., copays for treatment or over-the-counter medications, etc.)
- Dependent care expenses (e.g., increased child care costs due to school closings, remote learning expenses, computer or technology used for dependents, educational materials, online subscriptions, etc.)
- Increased transportation expenses (e.g., increased commuting costs due to lack of access to public transportation, etc.)
- Funeral Expenses (e.g., expenses attributed to the funeral of an employee, their spouse or dependent who dies from a COVID-19 diagnosis)
There are no limits on the amounts that are considered qualified disaster payments but the payments must be for a specific expense. Any payments made to be considered wage or salary replacements do not qualify. Nor can an employee’s salary be reduced in lieu these payments. As they are not considered wages, they are not required to be reported by the employer on the employee’s Form W-2 or on the employee’s individual income tax return.
Student Loan Repayment Benefits From Employers
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security (CARES) Act, which is aimed to provide relief to taxpayers affected by the COVID-19 pandemic. Through a provision in the act, Section 127 of the Internal Revenue Code was expanded to incorporate provisions of the Employer Participation in Repayment Act. Under this provision, employers are allowed to pay up to $5,250 of an employee’s student loan debt tax-free. To qualify for the tax-free treatment:
- The payments must be made between March 27, 2020 and December 31, 2020
- The amount of payment may not exceed $5,250 and is reduced by any other educational assistance provided to the employee during the year.
- The payment must be made to pay principal and/or interest on a qualified education loan.
- The payments must be provided under a program that is in writing, cannot discriminate in favor of highly compensated employees and whose terms and availability be communicated to all eligible employees.
Similar to contributions made under a 401(k) plan, employers can pay down an employee’s student loan debt on a monthly basis through the end of 2020 and the payments will not be taxable to either party. While all federal student loan debt payments have been suspended through September 30, 2020 under the CARES Act, this opportunity still allows for employers to assist their employees in reducing their debt by:
- Making 100% principal payments on Federal loans through September 30, 2020,
- Making principal and interest payments on Federal education loans from September 30 to December 31, 2020, or
- Making principal and interest payments on private education loans through December 31, 2020.
PLEASE NOTE: Any qualified disaster payments or student loan repayment benefits are not considered eligible forgivable payroll costs under the Payroll Protection Program loan. In addition, both benefit opportunities are strictly voluntary and not required by employers.