July 23, 2020
Massachusetts does not adopt the favorable federal income tax treatment of employer-paid student loans under the CARES Act
In TIR-20-9 the Massachusetts Department of Revenue explains its adoption of several provisions contained under the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act for Massachusetts personal income tax purposes.
In general, Massachusetts conforms to the personal income tax provisions of the CARES Act except as it relates to the employer payment of employees' student loans. The Department explains that it conforms to IRC Sections 127 and 221, as amended and in effect on January 1, 2005. Consequently, qualified education loan payments made by an employer are not excluded from an employee's Massachusetts gross income. Likewise, Massachusetts does not conform to the disallowance of the deduction for interest an employee pays on such loans.
Under federal law, IRC Section 127 allows up to $5,250 per year of employer-provided educational assistance that is not related to the employee's current job to be excluded from taxable wages.
Section 2206 of the CARES Act amends IRC Section 127 to temporarily treat an employer's payment of the principal or interest on an employee's student loan as excludable employer-provided educational assistance. To be excluded, the payments must be made after March 27, 2020, and before January 1, 2021.
The income exclusion, including the loan payments, remains capped at $5,250 per year.
EY Payroll News Flash