Savanna Hoffman
Student loan debt is a pressing issue for many, and some employers are now offering student loan repayment assistance as a benefit to their employees. This assistance can be provided in a few different ways, including signing bonuses, recurring payments, or contributions to retirement plans. These payments can be made directly to the lender or to the employee and can be offered tax-free up to a certain limit. This benefit not only helps employees with their student debt but also provides an incentive for employers to attract and retain talented workers. With the option of tax-free payments available until at least the end of 2025, more companies are expected to offer this valuable benefit.
| Characteristics | Values |
|---|---|
| Can companies pay off student loans from untaxed salary? | Yes, employers can make tax-free student loan payments until December 31, 2025, unless future legislation extends the deadline. |
| How much can employers pay tax-free? | Up to $5,250 per employee per year. |
| What if the employer pays more than $5,250? | Any amount over $5,250 must be included in the employee's income and is subject to taxes. |
| Who can benefit from this? | Employees who have taken out a loan to pay for qualifying education expenses, such as tuition, fees, books, and supplies. |
| What types of payments can employers make? | Employers can make signing bonuses, recurring payments, or lump-sum payments after the employee has been employed for a set period. |
| Are there any requirements for the educational assistance program? | Yes, the program must be in writing and cannot discriminate in favor of highly compensated employees. |
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What You'll Learn
Student loan repayment assistance programs
At the federal level, the Office of Personnel Management (OPM) oversees Loan Repayment Assistance Programs for federal agencies. Federal law allows any federal agency to establish an LRAP for its employees, with agencies authorized to provide up to $10,000 per calendar year, up to a lifetime limit of $60,000. Recipients of loan repayment assistance through these programs must agree to a three-year service obligation, and only federal student loans are eligible for assistance.
State governments also play a role in providing loan repayment assistance programs. Twenty-four LRAPs across 23 states offer loans or grants to civil legal aid attorneys and, in some cases, other public interest attorneys, to help them manage their educational debt. These programs are designed to comply with the tax code, ensuring that the assistance is non-taxable income.
In addition to state and federal programs, some employers have implemented student loan repayment assistance as a benefit for their employees. Employers can make tax-free student loan payments (up to the IRS limit of $5,250 per employee per year) until December 31, 2025, unless future legislation extends the deadline. This benefit not only helps employees with student debt relief but also assists employers in attracting and retaining talented employees.
School-based Loan Repayment Assistance Programs are another option, providing financial aid to graduates with educational debt who take on low-paying jobs, particularly in public interest and government work.
Overall, student loan repayment assistance programs offer a range of options for individuals seeking relief from their educational debt, helping them manage their loan repayments and pursue their career goals.
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Tax-free benefits
Employers can offer their employees tax-free benefits, such as student loan repayment assistance, as part of an educational assistance program. This benefit is available until December 31, 2025, unless future legislation extends the deadline. Employers can make tax-free student loan payments of up to $5,250 per employee per year. Payments can be made directly to the lender or to the employee.
Other tax-free benefits that employers can offer include:
- Health insurance and employer contributions to qualified retirement plans, which are exempt from FICA and federal income tax.
- Achievement awards for length of service, exempt from FICA up to a set dollar limit ($1,600 for qualified plan awards and $400 for non-qualified awards).
- Cell phones provided for business reasons, where the primary reason is not just compensation.
- De minimis fringe benefits, such as coffee in the break room, an occasional taxi ride home, or flowers for a personal occasion. However, cash or gift cards of any amount are taxable.
- Meals and lodging provided on company premises for the convenience of the employer are exempt from taxes.
- Transportation benefits such as parking, transit passes, and vanpooling are tax-free up to a set monthly limit ($315 in 2024).
- Adoption assistance is tax-free to employees up to a set dollar amount each year per adoption ($16,810 in 2024).
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Educational assistance programs
In the United States, employers that offer educational assistance programs can use them to help pay off their employees' student loans. This option has been available for payments made after March 27, 2020, and under current law, will continue to be valid until December 31, 2025. Employers can provide up to $5,250 per employee per year in tax-free benefits towards student loan payments. Any amount exceeding this limit should be included in the employee's income and is subject to taxes.
The IRS has taken steps to promote this benefit, offering free webinars and sharing information through e-newsletters and social media channels. The educational assistance program must be in writing and cannot discriminate in favor of highly compensated employees. Employers who do not currently have an educational assistance program may consider setting one up to take advantage of this benefit.
Companies such as Aetna, Estee Lauder, Fidelity Investments, and Staples are among those that offer student loan repayment assistance to their employees. This benefit not only helps employees with student debt relief but also provides employers with a tool to attract and retain talented individuals.
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Federal law
Under federal law, employers who have educational assistance programs can use them to help pay student loan obligations for their employees. This benefit is available for payments made after March 27, 2020, and will continue to be available until December 31, 2025.
Educational assistance programs have traditionally been used to pay for books, equipment, supplies, fees, tuition, and other education expenses for employees. Now, these programs can 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 qualify.
By law, tax-free benefits under an educational assistance program are limited to $5,250 per employee per year. Benefits exceeding this amount are taxable as wages. These programs must be in writing and cannot discriminate in favor of highly compensated employees.
Additionally, student loan repayment benefits are subject to employment taxes. When a student loan payment is made by the Federal Government on behalf of an employee, it is included in the employee's gross income and wages for Federal employment tax purposes. The agency must withhold and pay employment taxes from the employee's regular wages, the loan payment, or a separate payment made by the employee.
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Student loan debt relief
Student loan debt is a significant issue for many, with over 43 million Americans carrying federal student loan debt. However, there are now options for employers to assist their employees in paying off their student loans. Educational assistance programs have been available for many years, but only recently can they be used to pay student loans. This option will be available until December 31, 2025, and may be extended by future legislation.
Through these programs, employers can provide tax-free assistance to their employees to help pay off their student loans. This can take the form of signing bonuses, recurring payments, or lump-sum payments after an employee has been with the company for a set period. Employers can make payments directly to the lender or to the employee. The tax-free benefits are limited to $5,250 per employee per year, and any amount over this limit is taxable as wages.
This benefit not only helps employees pay off their student loans but also helps employers attract and retain talented workers. Some well-known companies that offer student loan repayment assistance include Aetna, Estee Lauder, Fidelity Investments, and Staples.
If you are an employee, it is worth checking with your employer to see if they offer such a program. If they do not, you may want to suggest it to your human resources manager, highlighting the benefits to the company. Alternatively, you can look for a new job with a company that offers student loan repayment assistance.
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Frequently asked questions
Your company can give you up to $5,250 per year toward your student loan payments without including this amount on your income.
Yes, you may need to be with the company for a set period before you’re eligible. However, some companies offer the benefit from the start.
Your company can make payments directly to your lender, or they can make payments to you.
Student loan repayment is a valuable benefit for employees, and it can also help employers attract and retain high-quality talent.
