A House Resolution proposed by New York Democrat Steve Israel would provide even more benefit for those that are receiving employer assistance with their student loans. Let’s take a look at this greatly beneficial piece of legislation, how it could help you and why you should push your lawmaker to get it out of committee and pushed toward approval. Israel sponsored the bill, but it has gained bi-partisan co-sponsors from fellow representatives in New York, DC, Rhode Island and Minnesota.
What HR 395 Proposes
Called the Student Loan Employment Benefits Act of 2013, the law would amend IRS code to exclude from income any amounts your employer pays you to help with your student loans. The annual cap would be $5,000 per year. Many employers offer LRAP benefits as a recruiting or retention measure. LRAPs are loan repayment assistance programs.
The way LRAPs work is that they pay a portion of your student loan payments usually by paying you a stipend each month based upon proof of payment. National Institutes of Health and Legal Services Corporation are just two employers that offer this benefit to attract and retain talented employees. But even employers that don’t advertise that they offer the program might and it may be a benefit you can negotiate for.
Taxability of LRAPs and How HR 395 Would Help
Currently, any student loan assistance you receive from your employer is taxable and will appear on your year-end W2. It’s considered taxable income but when your paycheck is calculated, you likely won’t see taxes deducted from this payment. You could actually end up owing taxes if you have your W4 deductions set so that you maximize your take-home and don’t have a large refund expected.
For instance, if your marginal tax rate is 25% and you get $300 per month in student loan assistance, it increases your taxable income by $3,600 and would leave you owing $900 more in taxes. Effectively, this reduces the benefit you’re receiving by one-fourth. If HR 395 passes, the $3,600 would be paid to you tax-free, so you would get the full benefit without increasing your tax liability. This would be a huge boon, especially to those that are eligible for an LRAP to offset a modest salary.
How You Can Help HR 395
A ton of new legislation is proposed each year and then is sent to committee to languish and die. Most never even rise to a vote. This bill is important and shouldn’t be allowed to peter out. But the only way to get it out of committee is to get involved, raise your voice and demand that it be put forward for a vote. Contact your Representative today and tell them to fight for HR 395 – the Student Loan Employment Benefits Act!