SnapshotQualified small businesses can make tax-free payments on qualified employees’ eligible student loans and claim a Connecticut state tax credit or refund.
The Benefits of Employer Student Loan Repayment
Did you know that, when your qualified small business makes payments on qualified employees’ eligible federal or private student loans, you can make those payments free of federal payroll taxes and income tax—up to $5,250 per employee? You can also claim a Connecticut state tax credit equal to 50 percent of the payments, up to $2,625 per employee annually, if you are making payment on an education loan or refinance loan from CHESLA. Qualified small businesses that don’t have a tax liability can apply to the Department of Revenue Services to exchange the credit for a refund equal to the credit’s value. (If your employees don’t have their student loans through CHESLA, and they reside in Connecticut, they can refinance their loans with CHESLA’s low fixed-rate refinancing program, potentially lowering their interest rate and monthly payments.)
Offering a student loan repayment program may be a smart move, because employees who work for companies that offer such programs experience reduced financial stress, while the company enjoys better employee engagement and retention. (According to American Student Assistance, a national nonprofit that helps students make informed decisions to help them meet their educational and career goals, 86 percent of employees would commit to a company for five years if the employer helped repay their student loans.)
With the tax-free payments, you and the employee both reap the rewards. Because the payments are not considered income, your employees save on federal income taxes, while you both save on federal payroll taxes on the qualifying payments.
To make the program easy for you to promote and administer, CHESLA has partnered with its Rhode Island counterpart, Rhode Island Student Loan Authority. RISLA will help you customize your program communications, define eligible employees, determine the contribution, and get you set up in an online portal—all in just 3–4 weeks. The user-friendly portal contains a dashboard where you can access employee loan information, offer loan refinance options, manage your contributions, send a payment confirmation to your employees, and much more.