Many churches want to assist employees in the challenges that come with the COVID-19 pandemic. Now, the CARES Act provides a temporary opportunity to help repay employee student loans.

The Coronavirus Aid Relief and Economic Security Act (the “CARES Act”) provides a way for churches to help repay employee student loans, with tax benefits for the employee.

Generally, a Section 127 Education Assistance Plan only allows a church to pay or reimburse tuition and other qualified educational expenses incurred while the employee is with that church.

Section 2206 of the CARES Act modifies Section 127 of the Internal Revenue Code so that churches can pay up to $5,250 to repay employee student loans during the pandemic emergency period beginning March 27, 2020, and ending December 31, 2025. The amount paid is tax-free to employees.

The most recent COVID-19 relief bill, attached to the Consolidated Appropriations Act, 2021, approved December 21, 2020, extended the tax-free status of church payments toward employee student loans through 2025.

An opportunity for churches through December 31, 2025

This temporary program differs from traditional Student Loan Repayment Programs (SLRP) offered by many employers in that the CARES Act relief is entirely tax-free to the employee, whereas SLRP payments are fully taxed, as much as 40% depending on the employee’s tax bracket and other factors.

Is the CARES Act program to repay employee student loans right for your church?

Chances are, you have employees struggling to repay student loans. Two-thirds of college graduates leaving school in 2018 had an average student loan debt of $29,200.

Taking advantage of this one-time chance to provide a much-needed tax-free benefit to help repay employee student loans can pay big returns for everyone.

Learn more – Section 127 Education Assistance Plan & Student Loan Relief Plan

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

For more information or if you need additional assistance, please use the contact information below.

Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (888) 421-0101 
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com