How do I indicate in TT that $5,250 of my employer's payment towards my student loans is non-taxable for 2021? Reference CARES Act Sec 2206 and IRC 127.

[KrisD15]

To clarify

is the amount included on your W-2 box 1? 

[jdp2102]

Thanks so much for your response. I'm really at a loss. The full amount is in Box 14 on my W2. I received the following notice from my employer:

Background

[...] However, as a result of the [...] CARES Act (Section 2206, Exclusion of Certain Employer Payments of Student Loans) and subsequent Consolidated Appropriations Act, 2021  (Section 120, Exclusion for Certain Employer Payments of Student Loans), Internal Revenue Code 127 (IRC 127) was expanded to include student loans in the definition for educational assistance and authorized relief of taxes related to some educational assistance.

What does this mean for you?

Up to $5,250 of employer payments of student loans is non-taxable in calendar year 2021, for both payroll and income tax purposes. This benefit only applies to student loan payments made after December 31, 2020 but before January 01, 2026. Only the [employer student loan payment] contribution amount in excess of $5,250 will be counted as taxable income and included in your federal taxable gross wages.

The table below specifies the tax treatment applied to your 2021 [employer student loan] payment:

Lender Information
Total Student Loan Benefit	$ XYZ
Lender	Name of Lender
Total amount sent to Lender	$ QRS
Date amount sent to Lender	MM/DD/2021
Federal Income Tax
Federal taxation of the total amount:
Non-Taxable	Amount no taxes were withheld	$ 5,250.00
Taxable	Amount taxes were withheld	$ XYZ - $5,250

[KrisD15]

This sounds like your employer paid more than 5,250 towards your loans. 

I read this as your employer saying that they excluded 5,250 from your wages but included the excess. 

Is that what happened? Did they pay more than 5,250 so included the difference as income? if that is the case, there is nothing you need to do because your W-2 has already accounted for that 5,250 by not including it in your income. 

It sounds to me that they are just letting you know that they aren't reporting the 5,250 but explaining that they did need to include the amount that was over 5,250. 

Only the [employer student loan payment] contribution amount in excess of $5,250 will be counted as taxable income and included in your federal taxable gross wages.

[jdp2102]

Yes, that's correct - the employer student loan payment was $10,000 and exceeded the tax-free $5,250. However, the entire $10,000 was included in Box 14 on my W2. How can I be sure that Turbo Tax isn't calculating that I owe tax on the whole amount?

[ThomasM125]

TurboTax will include the income listed in box 1 of  your W-2 form as income on your tax return. If the income is overstated, you need to make an entry to Other Income to remove the extra income reported.

- Go to the Income and Expenses section of TurboTax

 - Choose  Less Common Income

 - Choose Miscellaneous Income, 1099-A, 1099-C

 - Choose Other reportable Income

 - Enter a description and the amount of your adjustment as a negative number

[jdp2102]

Thank you for the helpful responses. You were much more helpful than the CPA phone support. Sadly, I had to clear my whole return to go back to the free version. Ufffff.

[KrisD15]

PLEASE BE AWARE that there is a difference between Box 1 and Box 14 on your W-2

The advice ThomasM125 gave is great IF YOU NEED TO SUBTRACT THE AMOUNT OUT OF BOX 1.

I do not think you need to subtract it out of Box 1. 

I think only the excess is in Box 1 as it should be.

Box 14 is for your information only. 

I could be wrong, you might want to check with your employer and the payroll department, but what I am hearing is this:

Your employer paid 10,000 towards your student loan

So that amount is in Box 14 for your information. 

Only 5,250 can be tax-free so they had to add the excess, in this case 4,750 as taxable income; Therefore 4,750 is included in Box 1 on your W-2

If this is correct, NO ADJUSTMENT NEEDS TO BE MADE. 

@jdp2102