What is the HEROES act?

Following its introduction into the House of Representatives in May 2020, the HEROES Act was passed into law on December 27, 2020. By providing financial support and relief to groups such as small-business owners, frontline workers and students, the $2.2 trillion HEROES Act aims to mitigate economic recession related to the COVID-19 pandemic.

The HEROES Act includes the following priorities:

• Support for small businesses with the Paycheck Protection Program
• Funds up to $39 billion for post-secondary education
• Additional direct stimulus check payments
• Improved worker safety policies and COVID-19 testing, detection and treatment measures

CARES vs HEROES

The CARES Act was passed into law in March 2020 and was aimed to provide economic aid to United States citizens. This includes a variety of programs for small businesses, workers, students and others. Although many people benefited from the CARES Act programs and received aid, such as stimulus checks, CARES failed to benefit students and other individuals. Under the CARES program, dependent post-secondary students under the age of 24 were ineligible for the $500 dependent stimulus aid.

The HEROES Act addresses these shortcomings. It includes broader aid for students, such as suspended loan payments, increased eligibility for stimulus checks and student loan payments. It also extends the student loan assistance program under IRC Section 127.

Implication of HEROES Act for student loans

Employer student loan assistance

Some employers opt to pay for their employee’s educational assistance because it supports the development of their role or position within the business and helps maintain a skilled workforce. They may also choose to do so to support the individual’s personal educational growth. In any case, employers and employees may be eligible for fringe benefits under HEROES. Fringe benefits include education assistance programs, which are a form of payment or provision on top of pay for performed work.

The HEROES Act extends employer student-loan assistance under Section 127 of the Internal Revenue Code (IRC) for five years, or from 2020 to 2025. Under IRC Section 127: a qualified educational assistance program, employers may contribute up to $5,250 to employees for certain education-related expenses they may incur, provided all conditions are met. This amount provides benefits that are exempt from taxation.

Benefits like tuition repayment assistance help employers create equitable employee benefits. This tax subsidy for individuals and employers under the HEROES Act student loans qualifications may help reduce economic drag for small businesses.

Which expenses are eligible?

Eligible educational expenses can include student loan payments for both principal and interest amounts and other expenses, including tuition, fees and similar payments, books, supplies and equipment. It may not include payment or provisions for supplies kept by the employees following the end of their educational course or any food, accommodation or transportation costs.

Certain supplies, sports, games or hobbies may qualify as eligible educational expenses. To qualify, these items must be reasonably job-related. For instance, if a person employed in a sports-related position enrolls in sports-related education and is required to participate in sports and hobbies, their expenses may be eligible.

Which employees are eligible?

According to the Committee on education and labor, individuals who may be eligible for a qualified educational assistance program include:Updated Heroes Act

• Current employees
• Laid-off employees
• Retired employees
• Employees on disability
• Some self-employed individuals

Spouses and dependents of employees are not eligible for this fringe benefit.

This benefit may apply to any employee enrolled in an educational program, regardless of whether the courses are related to the employee’s current role or responsibilities.

What are the requirements for a qualified educational assistance plan?

To qualify for an educational assistance program, the following requirements are applied to the employer’s program:

• Employers must provide a written plan.
• The plan may not offer other benefits in lieu of education, such as additional cash wages or other remuneration in gross income.
• Educational assistance may not exceed $5,250 per calendar year for all employers of the employee combined. Employees with more than one employer may receive a combined maximum amount of $5,250 across employers per year.
• The educational assistance plan may not discriminate in favor of highly compensated employees.
• Shareholders or owners of over 5% of capital or profits may receive only 5% of employer-paid educational assistance.

Additional stipulations

Certain tests aren’t applicable for a qualified educational assistance program. According to the IRS, “an educational assistance program shall not be held or considered to fail to meet any requirements” because:

• Utilization rates for different types of educational assistance made available under the program
• Successful completion, or attaining a particular course grade, is required for or considered in determining reimbursement under the program

Employer obligations

Employers are required to notify employees of the educational assistance plan. The benefits provided to employees are nontaxable, and the amounts paid by the employer may likewise be tax deductible on the business’s annual federal income tax. For more advice on taxes and regulations, employers should consult with lawyers or tax professionals.

Related: Payroll Taxes: A Guide for Employers