employer pays on student loan debt

[jlew1229]

The cares act allows an employer to pay $5250.00 towards student loan debt, tax free for their employees.      They did not run this thru a W-2, instead they issued the employee a 1099 misc. with box 3 other income filled in.     What is the best way to handle this on the return?   I need to claim the 1099 misc. amount as income, so that the IRS does not send a letter, but also need to indicate that $5250 of this amount should be tax free.   I don't see an input screen for tax free education payments.     

Also, would the excess over the $5250 be subject to Self employment tax?  

Thank you in advance for your help. 

[BobKamman · Accepted solution]

First, try to educate the employer.  They should not have issued that 1099.  Maybe they will correct it.  Here are the IRS instructions from Pub 15-B:

Exclusion from wages. 

You can exclude up to $5,250 of educational assistance you provide to an employee under an educational assistance program from the employee's wages each year.

Assistance over $5,250. 

If you don't have an educational assistance plan, or you provide an employee with assistance exceeding $5,250, you must include the value of these benefits as wages, . . .

If that doesn't work, attach a statement to the return explaining why there is no entry on Schedule 1, LIne 8 or elsewhere that would add this in and then subtract it out.  Keep the statement handy if the taxpayer receives an IRS letter, so you can send it to them again. 

The payment was more than $5,250?  Ask for a corrected W-2, or add it to Wages with a Form 4852.

[TaxGuyBill]

My first concern is if it really is a Qualifying Program or not.  If the employer sent a 1099-MISC, they might be clueless about the actual rules.

https://www.law.cornell.edu/cfr/text/26/1.127-2

[qbteachmt]

"would the excess over the $5250 be subject to Self employment tax?"

Your taxpayer isn't Self-employed.

[jlew1229]

They are not self employed, but it was issued on a 1099 -NEC, albiet incorrectly.   But this means no FICA or Medicare has been withheld from this on the employee or employer level.    

[qbteachmt]

The point is, the question regarding SE doesn't even apply. You know that.

The employer needs to be pursued to make the correction.

Or,

https://www.irs.gov/forms-pubs/about-form-4852

Address the problem and that is done by not treating it as if the NEC is the correct thing to act on. That's the error, so don't keep using it.

[jlew1229]

Thank you !!    

[jlew1229]

Thank you !

[jlew1229]

I will have them pursue the corrected W-2.    Thank you  for your help .