Student loan payment assistance programs

(a)

In general

Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 127 the following new section:

127A.

Student loan payment assistance programs

(a)

In general

Gross income of an employee does not include amounts paid or incurred by the employer for student loan payment assistance provided to such employee if the assistance is furnished pursuant to a program which is described in subsection (c). (b)

Limitations

(1)

Assistance limitation

The amount taken into account under subsection (a) with respect to an individual for student loan assistance with respect to student loan payments during a taxable year shall not exceed $5,000. (2)

Earned income limitation

The amount excluded from the income of an employee under subsection (a) for any taxable year shall not exceed the earned income of such employee for such taxable year. (c)

Student loan payment assistance program

(1)

In general

For purposes of this section a student loan payment assistance program is a separate written plan of an employer for the exclusive benefit of his employees to provide such employees with student loan payment assistance which meets the requirements of paragraphs (2) through (9) of this subsection. If any plan would qualify as a student loan payment assistance program but for a failure to meet the requirements of this subsection, then, notwithstanding such failure, such plan shall be treated as a student loan payment assistance program in the case of employees who are not highly compensated employees. (2)

Discrimination

The contributions or benefits provided under the plan shall not discriminate in favor of employees who are highly compensated employees (within the meaning of section 414(q)). (3)

Eligibility

The program shall benefit employees who qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of employees described in paragraph (2). (4)

Principal shareholders or owners

Not more than 25 percent of the amounts paid or incurred by the employer for student loan payment assistance during the year may be provided for the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the year) owns more than 5 percent of the stock or of the capital or profits interest in the employer. (5)

No funding required

A program referred to in paragraph (1) is not required to be funded. (6)

Notification of eligible employees

Reasonable notification of the availability and terms of the program shall be provided to eligible employees. (7)

Statement of expenses

The plan shall furnish to an employee, on or before January 31, a written statement showing the amounts paid or expenses incurred by the employer in providing student loan payment assistance to such employee during the previous calendar year. (8)

Benefits

(A)

In general

A plan meets the requirements of this paragraph if the average benefits provided to employees who are not highly compensated employees under all plans of the employer is at least 55 percent of the average benefits provided to highly compensated employees under all plans of the employer. (B)

Salary reduction agreements

For purposes of subparagraph (A), in the case of any benefits provided through a salary reduction agreement, a plan may disregard any employees whose compensation is less than $25,000. For purposes of this subparagraph, the term compensation has the meaning given such term by section 414(q)(4), except that, under rules prescribed by the Secretary, an employer may elect to determine compensation on any other basis which does not discriminate in favor of highly compensated employees. (9)

Excluded employees

For purposes of paragraphs (3) and (8), there shall be excluded from consideration— (A)subject to rules similar to the rules of section 410(b)(4), employees who have not attained the age of 21 and completed 1 year of service (as defined in section 410(a)(3)), and (B)employees not included in a student loan payment assistance program who are included in a unit of employees covered by an agreement which the Secretary finds to be a collective bargaining agreement between employee representatives and 1 or more employees, if there is evidence that student loan payment benefits were the subject of good faith bargaining between such employee representatives and such employer or employers. (d)

Definitions and special rules

For purposes of this section— (1)

Student loan payment assistance

(A)

In general

The term student loan payment assistance means the payment of principal or interest on— (i)any indebtedness incurred by the employee solely to pay qualified higher education expenses (as defined in section 221) which— (I)are paid or incurred within a reasonable period of time before or after the indebtedness was incurred, and (II)are attributable to education furnished during a period during which the employee was an eligible student, or (ii)any indebtedness used to refinance indebtedness described in clause (i).

Such term shall not include any payment of principal or interest on indebtedness owed to a person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer or to any person by reason of a loan under any qualified employer plan (as defined in section 72(p)(4)) or under any contract referred to in section 72(p)(5).

(B)

Eligible student

The term eligible student has the meaning given such term by section 25A(b)(3). (C)

Dependent

The term dependent has the meaning given such term by section 152 (determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof). (2)

Earned income

The term earned income shall have the meaning given such term in section 32(c)(2), but such term shall not include any amounts paid or incurred by an employer for student loan payment assistance to an employee. (3)

Employee

The term employee includes, for any year, an individual who is an employee within the meaning of section 401(c)(1) (relating to self-employed individuals). (4)

Employer

An individual who owns the entire interest in an unincorporated trade or business shall be treated as his own employer. A partnership shall be treated as the employer of each partner who is an employee within the meaning of paragraph (3). (5)

Attribution rules

(A)

Ownership of stock

Ownership of stock in a corporation shall be determined in accordance with the rules provided under subsections (d) and (e) of section 1563 (without regard to section 1563(e)(3)(C)). (B)

Interest in unincorporated trade or business

The interest of an employee in a trade or business which is not incorporated shall be determined in accordance with regulations prescribed by the Secretary, which shall be based on principles similar to the principles which apply in the case of subparagraph (A). (6)

Utilization test not applicable

A student loan payment assistance program shall not be held or considered to fail to meet any requirements of subsection (c) (other than paragraphs (4) and (8) thereof) merely because of utilization rates for the different types of assistance made available under the program. (7)

Disallowance of excluded amounts as credit or deduction

No deduction or credit shall be allowed to the employee under any other section of this chapter for any amount excluded from the gross income of the employee by reason of this section.

(b)

Conforming amendments

Sections 221(d)(2)(A), 414(n)(3)(C) and (t)(2), 3121(a)(18), 3306(b)(13), 3401(a)(18), and 6039D(d)(1) of such Code are each amended by inserting 127A, after 127,. (c)

Clerical amendment

The table of sections for part III of subchapter B of chapter 1 of such Code is amended by inserting after the item relating to section 127 the following new item:

Sec. 127A. Student loan payment assistance programs.

(d)

Effective date

The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.