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The IRS is reminding employers who offer educational assistance programs that they can also use them to help pay for their employees’ student loans. Though educational assistance programs have been available for many years, the option to use them to pay for student loans has only been available for payments made after March 27, 2020. Under current law, this student loan provision expires Dec. 31, 2025.
Traditionally, educational assistance programs have been used to pay for employees’ books, equipment, supplies, fees, tuition, and other education expenses. These programs can now also 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 (or FUTA) tax. By law, tax-free benefits under an educational assistance program are limited to $5,250 per employee per year, and assistance provided above this level is typically taxable as wages.
Program Requirements
An educational assistance program is a separate written plan that provides educational assistance to employees. Two key requirements are that these programs must:
- Be in writing and
- Cannot discriminate in favor of highly compensated employees.
For other requirements, see IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits, or Publication 970, Tax Benefits for Education.
Action Steps
As employees increasingly look to their employers for student loan assistance, employers who don’t have an educational assistance program may want to consider establishing one to take advantage of the current student loan provision. Fringe benefits, such as educational assistance programs, can help employers attract and retain qualified workers. In addition, by offering student loan support, employers can show employees they are valued and provide them with much-needed financial assistance and support, which may increase employee productivity, engagement, and happiness.
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Adding Educational Assistance to Your Employee Benefits Package
If you are interested in helping with your employees’ student loan payments through an educational assistance benefit, the GTM Insurance Agency can help add this to your existing benefits package or help create a new, customized benefits package for your workforce. They’ll shop for the best rates from top local and national brokers. When you get your benefits through GTM, you can seamlessly integrate these offerings with our payroll platform, making it easy for employees to sign up and manage their benefits. Request a free quote to learn more.
