The Internal Revenue Service (IRS) has issued a reminder that employers offering educational assistance programs can also use them to help pay for their employees’ student loan obligations through December 31, 2025.
Educational assistance programs have long been available, but the option to use them for student loan payments has only been in place since March 27, 2020. Under current law, this provision is set to expire on December 31, 2025.
Traditionally, these programs have covered expenses such as books, equipment, supplies, fees, and tuition. They can now also be used to pay the principal and interest on an employee’s qualified education loans. Payments made directly to the lender or to the employee may qualify.
In most cases, educational benefits are excluded from federal income tax withholding, Social Security tax, Medicare tax, and federal employment (FUTA) tax. By law, tax-free benefits under an educational assistance program are limited to $5,250 per employee per year. Assistance provided above that level is generally taxable as wages.
Employers without an educational assistance program may want to consider establishing one. Fringe benefits like these can help attract and retain qualified workers.
These programs must be in writing and cannot favor highly compensated employees. For more information on other requirements, see Publication 15-B: Employer’s Tax Guide to Fringe Benefits.
For details on what qualifies as a student loan, refer to Chapter 10 in Publication 970: Tax Benefits for Education.
For more information visit the following pages on IRS.gov:
- Education credits
- Qualified education expenses
- Tax benefits for education: Information center
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