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IRS reminder: Employer educational assistance programs can be used to help pay off workers’ student loans through Dec. 31, 2025
Written on Sep 6, 2024
The IRS has issued a reminder that employers who offer educational assistance programs can also use them to help pay for their employees’ student loan obligations through Dec. 31, 2025.
Although educational assistance programs have been available for many years, the option to use them to pay for workers’ student loans has only been available for payments made after March 27, 2020. Under current law, this student loan provision is set to expire Dec. 31, 2025.
Traditionally, educational assistance programs have been used to pay for books, equipment, supplies, fees, tuition and other education expenses for the employee. These programs can now also be used to pay principal and interest on an employee’s qualified education loans. Payments made directly to the lender, as well as those made 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. Normally, assistance provided above that level is taxable as wages.
Employers who don’t have an educational assistance program may want to consider setting one up. Fringe benefits, such as educational assistance programs, can help employers attract and retain qualified workers.
These programs must be in writing and cannot discriminate in favor of highly compensated employees. For information on other requirements, see Publication 15-B, Employer’s Tax Guide to Fringe Benefits.
For details on what qualifies as a student loan, see Chapter 10 in Publication 970, Tax Benefits for Education.
For more information visit the following pages on IRS.gov: