Tax-free Student Loan Payments by Employers Expanded through 2025

 In Blog

Education Assistance

Contributed by: Megan McDonald, Staff Accountant

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the 2021 Consolidated Appropriations Act (CAA) have expanded educational assistance programs to include qualified student loan payments made between March 27, 2020, and December 31, 2025. This change allows employers to offer up to $5,250 of tax-free payments towards employees’ qualified student loans. For employees trying to pay down student loans, the new legislation offers a welcomed relief.

Additionally, these programs also serve as an incentive for employers to offer educational assistance programs. While the payments are tax-free to the employee, they are still tax-deductible for the employer. As many in the U.S. struggle with student loan debt, employers who decide to offer an educational assistance program may find that they can use the benefit to attract quality candidates or retain valuable employees.

Take A Closer Look At The Educational Assistance Program
Understanding some of the details of the Educational Assistant Program can ensure you don’t miss out on its benefits:

Educational Assistance Program
A written plan that provides educational assistance to your employees that must meet specific IRS criteria. The employees must also meet certain criteria to qualify. Generally, an assistance program includes payments towards tuition, textbooks, equipment, fees, and supplies. Certain expenses such as meals, lodging, and transportation are not qualified expenses covered by an educational assistance program.

Other Things to Know About the Program:

  • Employers must have a formal written educational assistance program to be able to offer the educational assistance program.
  • The maximum amount excluded from wages each year is $5,250.
  • Only benefits paid over the $5,250 would be required to be included on Form W-2.
  • The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) expanded educational assistance to include certain payments made towards employees’ qualified student loans by employers after March 27, 2020, through December 31, 2020. This was later extended by the 2021 Consolidated Appropriations Act (CAA) to cover payments made through December 31, 2025.
  • The tax-free payments can be made either directly to the loan provider or to the employee.
  • Employers may want to consider offering an educational assistance program as a way to attract or retain employees.
  • According to Forbes.com, approximately 45 million borrowers owe a total of $1.71 trillion in student loans in 2021. As other forgiveness options, such as PSLF, are showing low numbers of successful forgiveness, employees may show increased interest in employer-sponsored educational assistance programs to assist in paying off student loan debt.

As employers seek to attract and retain talented employees, expanding the educational assistance program to cover $5,250 of payments towards qualified student loan debt through 2025 may be a valuable tool for employers to consider. The tax-free payments for employees and the tax-deductible expense for employers can make an educational assistance program a benefit for both the employee and the employer.