Student Loan Interest Deduction
http://www.irs.gov/taxtopics/tc456.html
You may be able to deduct interest you pay on a qualified student loan. Generally, the amount you may deduct is the lesser of $2,500 or the amount of interest you actually paid.
The deduction is claimed as an adjustment to income so you do not need to itemize your deductions on Form 1040, Schedule A ( http://www.irs.gov/pub/irs-pdf/f1040sa.pdf ) (PDF).
You can claim the deduction if all of the following apply:
You paid interest on a qualified student loan in tax year 2012
You are legally obligated to pay interest on a qualified student loan
Your filing status is not married filing separately
Your modified adjusted gross income is less than a specified amount which is set annually, and
You and your spouse, if filing jointly, cannot be claimed as dependents on someone else's return
A qualified student loan is a loan you took out solely to pay qualified higher education expenses. See Publication 970 ( http://www.irs.gov/publications/p970/index.html ), Tax Benefits for Education, and the Form 1040 Instructions to determine if your expenses qualify.
If you file a Form 2555 ( http://www.irs.gov/pub/irs-pdf/i1040.pdf ) (PDF), Form 2555-EZ ( http://www.irs.gov/pub/irs-pdf/f2555ez.pdf ) (PDF) or Form 4563 ( http://www.irs.gov/pub/irs-pdf/f4563.pdf ) (PDF), or if you exclude income from sources inside Puerto Rico, refer to Publication 970 instead of the worksheet in the Form 1040 Instructions.
If you paid $600 or more of interest on a qualified student loan during the year, you will receive a Form 1098-E ( http://www.irs.gov/pub/irs-pdf/f1098e.pdf ) (PDF), Student Loan Interest Statement, from the entity to which you paid the student loan interest.
For further information about this deduction, including how to determine when the deduction is phased out, refer to Publication 970 ( http://www.irs.gov/publications/p970/index.html ), Tax Benefits for Education.
Student loan deductions
http://www.hmrc.gov.uk/payerti/payroll/pay-and-deductions/student-loan.htm
You may have to deduct student loan repayments from an employee's pay along with PAYE deductions. Student loan repayments start the April after an employee leaves higher education and once their income reaches a certain amount.
This guide explains when you have to start making student loan deductions and how to make them, when to stop, and what to do in certain special situations or if you make a mistake.
Your responsibilities as an employer
As an employer you are responsible for:
checking if a new employee needs to make student loan repayments
deducting student loan repayments and passing the payment to HM Revenue & Customs (HMRC)
recording student loan repayments on employee payroll records, pay slips, Full Payment Submissions and on a form P45 when an employee leaves
You are not responsible for:
deciding that employees have to make student loan repayments
handling employees' student loan queries
If an employee has a query about their student loan, they can contact the Student Loans Company on 0845 0738 891.
The answers to questions you or your employees may have about student loan repayments can be found in 'CSL2 Collection of Student Loans - a guide for employers and employees'.
Download leaflet CSL2, Collection of Student Loans - a guide for employers and employees ( http://www.hmrc.gov.uk/leaflets/csl2.pdf ) (PDF 156K)
Darllenwch daflen CSL2, Casglu Benthyciadau i Fyfyrwyr - canllaw i gyflogwyr a chyflogeion - fersiwn Cymraeg ( http://www.hmrc.gov.uk/leaflets/csl2-welsh.pdf )(PDF 143K)
When to start making student loan deductions
You make student loan deductions if any of the following apply:
a new employee gives you a P45 stating that student loans deductions need to continue
when you check, a new employee tells you that they are repaying a student loan
HMRC sends you a Start Notice form SL1 as an employee is now eligible to start repaying their student loan
HMRC sends you form SL1 when they identify a new employee who is or should be repaying a student loan. You should then apply that notice as soon as an employee's pay, liable for National Insurance contributions (NICs), exceeds the student loan threshold. From 6 April 2013 the income threshold for starting to make repayments is £16,365 a year (£1,363 a month or £314 a week). If your employee's pay for employer Class 1 NICs already exceeds these amounts you must start making loan deductions from the first payday after the start date HMRC gives you on form SL1.
Once you've registered and activated the 'PAYE Online for employers' service, HMRC will automatically send you forms SL1 (and Stop Notifications on form SL2) online unless you specifically request paper versions of PAYE notices.
HMRC recommends you set up email reminders and notifications using one of the options available in PAYE Online. This means you'll automatically get sent an email when there's something new for you to view.
Using HMRC's Online Service - PAYE for employers ( http://www.hmrc.gov.uk/payerti/getting-started/using-paye-online.htm )
How to make student loan deductions
When repayments start you deduct 9 per cent of an employee's income over the threshold towards repaying their loan. From 6 April 2013 the income threshold for starting to make repayments is £16,365 a year (£1,363 a month or £314 a week). Payroll software will automatically calculate and make these deductions for you, update your payroll records and send the figures to HMRC when you report your payroll information.
Deductions should be calculated on the same gross pay amount used to calculate NICs. So if you have to aggregate earnings because the employee has another job with you, or with another employer you are carrying on business in association with, you should make the deductions based on the aggregated earnings. You can find out whether you should be aggregating earnings at the link below.
You pay any student loan deductions you make to HMRC as part of your single monthly payment of PAYE tax, NICs and student loans deducted during the same pay period.
Employee has more than one job ( http://www.hmrc.gov.uk/payerti/employee-starting/special-situations/multiple-jobs.htm )
When to stop making deductions
HMRC will automatically send you a Stop Notification form SL2 when it's time to stop making student loan deductions from an employee's pay. Deductions must stop from the first available payday after the stop date stated on the form.
You may also be asked to stop making deductions by the Student Loans Company. This may occur if you're an education institution or local authority in England and Wales and a teacher you employ is in the Repayment of Teachers Loan Scheme.
You should not stop making deductions just because an employee asks you to. If an employee thinks they shouldn't be making loan repayments they should call the Student Loans Company on 0870 240 6298.
If you have a query about whether student loan repayments should stop you can contact the HMRC Employer Helpline.
Repayment of Teachers' Loans Scheme ( http://www.hmrc.gov.uk/payerti/payroll/pay-and-deductions/student-loan/rti-scheme.htm )
Find contact details for HMRC's Employer Helpline ( http://search2.hmrc.gov.uk/kbroker/hmrc/contactus/search.ladv?raction=view&fl0=__dsid%3A&sm=0&ha=34&as=1&sf=&sp_scope=hmrc&sc=hmrc&nh=10&sr=0&cs=ISO-8859-1&tx1=&tx0=49646 )
Special student loan deduction cases
There are some situations you need to be aware of that can affect the way you calculate deductions. These are:
court orders - you'll need to know the order of deductions based on their priority
payments after an employee dies - make no deductions from payments made after their death
payments after an employee leaves - use the same earnings period as for NICs
the employee has more than one job - ignore earnings from another employer unless you are having to aggregate earnings, as already explained in this guide
holiday pay - use the same basis as for NICs
change of pay interval - adjust for the new earnings period
You can find more information about these special cases in HMRC's Employer Helpbook E17, 'Collection of Student Loans'.
Download Employer Helpbook E17, 'Collection of Student Loans' ( http://www.hmrc.gov.uk/helpsheets/e17.pdf )(PDF 928K)
Student loan deductions when an employee works abroad
If you pay an employee while they work abroad you should continue making deductions. For further information view the relevant section in Frequently Asked Questions (FAQs) on HMRC's website.
Get answers to FAQs about student loan repayments when working abroad ( http://www.hmrc.gov.uk/employers/faq-sl-abroad.htm )
Student loan deduction mistakes
If you deduct the wrong student loan repayment amount, what action you take depends on the tax year the error occurred in.
Deduction mistakes in the current tax year
For mistakes in the current year, you repay an over deduction or collect an under deduction. You also adjust your payroll records so that when you next report your payroll information to HMRC, the Full Payment Submission (FPS) will reflect the correct 'Student Loan Repayment Year to Date' figure.
Deduction mistakes in the earlier tax year
For mistakes made in an earlier year if there's:
an under deduction, you tell the employee to let the Student Loans Company know about it and take no future action as the repayment will be covered in future deductions
an over deduction, you can repay the employee the overpayment
With an over deduction made in an earlier year you also to need to submit an additional FPS or an Earlier Year Update (EYU) depending on when you notice the mistake.
If you notice the over deduction before 20 April in the following tax year, submit an FPS with the corrected 'Student Loan Repayment Year to Date' figure as at 5 April for the previous tax year.
If you notice the over deduction after 19 April of the following tax year, submit an EYU to record the difference between what you had originally deducted and what the figure should have been.
Download Employer Helpbook E17, 'Collection of Student Loans' ( http://www.hmrc.gov.uk/helpsheets/e17.pdf )(PDF 928K)
Find contact details for HMRC's Employer Helpline ( http://search2.hmrc.gov.uk/kbroker/hmrc/contactus/search.ladv?raction=view&fl0=__dsid%3A&sm=0&ha=34&as=1&sf=&sp_scope=hmrc&sc=hmrc&nh=10&sr=0&cs=ISO-8859-1&tx1=&tx0=49646 )
http://www.irs.gov/taxtopics/tc456.html
You may be able to deduct interest you pay on a qualified student loan. Generally, the amount you may deduct is the lesser of $2,500 or the amount of interest you actually paid.
The deduction is claimed as an adjustment to income so you do not need to itemize your deductions on Form 1040, Schedule A ( http://www.irs.gov/pub/irs-pdf/f1040sa.pdf ) (PDF).
You can claim the deduction if all of the following apply:
You paid interest on a qualified student loan in tax year 2012
You are legally obligated to pay interest on a qualified student loan
Your filing status is not married filing separately
Your modified adjusted gross income is less than a specified amount which is set annually, and
You and your spouse, if filing jointly, cannot be claimed as dependents on someone else's return
A qualified student loan is a loan you took out solely to pay qualified higher education expenses. See Publication 970 ( http://www.irs.gov/publications/p970/index.html ), Tax Benefits for Education, and the Form 1040 Instructions to determine if your expenses qualify.
If you file a Form 2555 ( http://www.irs.gov/pub/irs-pdf/i1040.pdf ) (PDF), Form 2555-EZ ( http://www.irs.gov/pub/irs-pdf/f2555ez.pdf ) (PDF) or Form 4563 ( http://www.irs.gov/pub/irs-pdf/f4563.pdf ) (PDF), or if you exclude income from sources inside Puerto Rico, refer to Publication 970 instead of the worksheet in the Form 1040 Instructions.
If you paid $600 or more of interest on a qualified student loan during the year, you will receive a Form 1098-E ( http://www.irs.gov/pub/irs-pdf/f1098e.pdf ) (PDF), Student Loan Interest Statement, from the entity to which you paid the student loan interest.
For further information about this deduction, including how to determine when the deduction is phased out, refer to Publication 970 ( http://www.irs.gov/publications/p970/index.html ), Tax Benefits for Education.
Student loan deductions
http://www.hmrc.gov.uk/payerti/payroll/pay-and-deductions/student-loan.htm
You may have to deduct student loan repayments from an employee's pay along with PAYE deductions. Student loan repayments start the April after an employee leaves higher education and once their income reaches a certain amount.
This guide explains when you have to start making student loan deductions and how to make them, when to stop, and what to do in certain special situations or if you make a mistake.
Your responsibilities as an employer
As an employer you are responsible for:
checking if a new employee needs to make student loan repayments
deducting student loan repayments and passing the payment to HM Revenue & Customs (HMRC)
recording student loan repayments on employee payroll records, pay slips, Full Payment Submissions and on a form P45 when an employee leaves
You are not responsible for:
deciding that employees have to make student loan repayments
handling employees' student loan queries
If an employee has a query about their student loan, they can contact the Student Loans Company on 0845 0738 891.
The answers to questions you or your employees may have about student loan repayments can be found in 'CSL2 Collection of Student Loans - a guide for employers and employees'.
Download leaflet CSL2, Collection of Student Loans - a guide for employers and employees ( http://www.hmrc.gov.uk/leaflets/csl2.pdf ) (PDF 156K)
Darllenwch daflen CSL2, Casglu Benthyciadau i Fyfyrwyr - canllaw i gyflogwyr a chyflogeion - fersiwn Cymraeg ( http://www.hmrc.gov.uk/leaflets/csl2-welsh.pdf )(PDF 143K)
When to start making student loan deductions
You make student loan deductions if any of the following apply:
a new employee gives you a P45 stating that student loans deductions need to continue
when you check, a new employee tells you that they are repaying a student loan
HMRC sends you a Start Notice form SL1 as an employee is now eligible to start repaying their student loan
HMRC sends you form SL1 when they identify a new employee who is or should be repaying a student loan. You should then apply that notice as soon as an employee's pay, liable for National Insurance contributions (NICs), exceeds the student loan threshold. From 6 April 2013 the income threshold for starting to make repayments is £16,365 a year (£1,363 a month or £314 a week). If your employee's pay for employer Class 1 NICs already exceeds these amounts you must start making loan deductions from the first payday after the start date HMRC gives you on form SL1.
Once you've registered and activated the 'PAYE Online for employers' service, HMRC will automatically send you forms SL1 (and Stop Notifications on form SL2) online unless you specifically request paper versions of PAYE notices.
HMRC recommends you set up email reminders and notifications using one of the options available in PAYE Online. This means you'll automatically get sent an email when there's something new for you to view.
Using HMRC's Online Service - PAYE for employers ( http://www.hmrc.gov.uk/payerti/getting-started/using-paye-online.htm )
How to make student loan deductions
When repayments start you deduct 9 per cent of an employee's income over the threshold towards repaying their loan. From 6 April 2013 the income threshold for starting to make repayments is £16,365 a year (£1,363 a month or £314 a week). Payroll software will automatically calculate and make these deductions for you, update your payroll records and send the figures to HMRC when you report your payroll information.
Deductions should be calculated on the same gross pay amount used to calculate NICs. So if you have to aggregate earnings because the employee has another job with you, or with another employer you are carrying on business in association with, you should make the deductions based on the aggregated earnings. You can find out whether you should be aggregating earnings at the link below.
You pay any student loan deductions you make to HMRC as part of your single monthly payment of PAYE tax, NICs and student loans deducted during the same pay period.
Employee has more than one job ( http://www.hmrc.gov.uk/payerti/employee-starting/special-situations/multiple-jobs.htm )
When to stop making deductions
HMRC will automatically send you a Stop Notification form SL2 when it's time to stop making student loan deductions from an employee's pay. Deductions must stop from the first available payday after the stop date stated on the form.
You may also be asked to stop making deductions by the Student Loans Company. This may occur if you're an education institution or local authority in England and Wales and a teacher you employ is in the Repayment of Teachers Loan Scheme.
You should not stop making deductions just because an employee asks you to. If an employee thinks they shouldn't be making loan repayments they should call the Student Loans Company on 0870 240 6298.
If you have a query about whether student loan repayments should stop you can contact the HMRC Employer Helpline.
Repayment of Teachers' Loans Scheme ( http://www.hmrc.gov.uk/payerti/payroll/pay-and-deductions/student-loan/rti-scheme.htm )
Find contact details for HMRC's Employer Helpline ( http://search2.hmrc.gov.uk/kbroker/hmrc/contactus/search.ladv?raction=view&fl0=__dsid%3A&sm=0&ha=34&as=1&sf=&sp_scope=hmrc&sc=hmrc&nh=10&sr=0&cs=ISO-8859-1&tx1=&tx0=49646 )
Special student loan deduction cases
There are some situations you need to be aware of that can affect the way you calculate deductions. These are:
court orders - you'll need to know the order of deductions based on their priority
payments after an employee dies - make no deductions from payments made after their death
payments after an employee leaves - use the same earnings period as for NICs
the employee has more than one job - ignore earnings from another employer unless you are having to aggregate earnings, as already explained in this guide
holiday pay - use the same basis as for NICs
change of pay interval - adjust for the new earnings period
You can find more information about these special cases in HMRC's Employer Helpbook E17, 'Collection of Student Loans'.
Download Employer Helpbook E17, 'Collection of Student Loans' ( http://www.hmrc.gov.uk/helpsheets/e17.pdf )(PDF 928K)
Student loan deductions when an employee works abroad
If you pay an employee while they work abroad you should continue making deductions. For further information view the relevant section in Frequently Asked Questions (FAQs) on HMRC's website.
Get answers to FAQs about student loan repayments when working abroad ( http://www.hmrc.gov.uk/employers/faq-sl-abroad.htm )
Student loan deduction mistakes
If you deduct the wrong student loan repayment amount, what action you take depends on the tax year the error occurred in.
Deduction mistakes in the current tax year
For mistakes in the current year, you repay an over deduction or collect an under deduction. You also adjust your payroll records so that when you next report your payroll information to HMRC, the Full Payment Submission (FPS) will reflect the correct 'Student Loan Repayment Year to Date' figure.
Deduction mistakes in the earlier tax year
For mistakes made in an earlier year if there's:
an under deduction, you tell the employee to let the Student Loans Company know about it and take no future action as the repayment will be covered in future deductions
an over deduction, you can repay the employee the overpayment
With an over deduction made in an earlier year you also to need to submit an additional FPS or an Earlier Year Update (EYU) depending on when you notice the mistake.
If you notice the over deduction before 20 April in the following tax year, submit an FPS with the corrected 'Student Loan Repayment Year to Date' figure as at 5 April for the previous tax year.
If you notice the over deduction after 19 April of the following tax year, submit an EYU to record the difference between what you had originally deducted and what the figure should have been.
Download Employer Helpbook E17, 'Collection of Student Loans' ( http://www.hmrc.gov.uk/helpsheets/e17.pdf )(PDF 928K)
Find contact details for HMRC's Employer Helpline ( http://search2.hmrc.gov.uk/kbroker/hmrc/contactus/search.ladv?raction=view&fl0=__dsid%3A&sm=0&ha=34&as=1&sf=&sp_scope=hmrc&sc=hmrc&nh=10&sr=0&cs=ISO-8859-1&tx1=&tx0=49646 )
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