As a general rule, if someone pays a debt on your behalf, you have taxable income.

As part of the CARES Act, an employer can pay up to $5,250 in 2020 of an employee’s student loan obligation on a tax-free basis. Note, however, that this provision modifies existing law, which permits an employer to pay up to $5,250 of an employee’s qualified educational expenses with the payment being tax-free to the employee.

This is now a combined limit; thus, an employer could pay $3,000 towards an employee’s Master’s degree and another $4,000 of the same employee’s student loan payments in 2020, but the maximum amount that will be tax-free to the employee is $5,250.

To the extent an employee’s student loan is paid on a tax-free basis under new Section 127 by his or her employer, the employee cannot deduct the interest on the student loan.