A limited-time use of educational assistance programs is scheduled to expire soon. IRS recently provided details about this fringe benefit.
As explained in IR-2024-227, an employer may make payments of up to $5,250 per year toward an employee’s student loans through the end of 2025.
The payments can be made to the employee or the lender. Either way, such contributions can be excluded from an employee’s income.
This provision, under Internal Revenue Code (IRC) Sec. 127(c)(1)(B), was added by the Coronavirus Aid, Relief, and Economic Security Act. The provision first became available for payments made after March 27, 2020.
Of course, employer-provided educational assistance programs go back further than 2020.
For many years, employers have been allowed to pay up to $5,250 per year for employees’ education expenses as presented in IRC Sec. 127(c)(1)(A).
The education expenses can include items like tuition, fees and similar payments, as well as books, supplies and equipment.
Note: The tax-free amount for this fringe benefit is $5,250 when combining both:
- education expenses, and
- loans.
Legislation Addresses Fringe Benefit
While the measure pertaining to student loan payments currently applies to payments made before January 1, 2026, new bipartisan legislation may change that.
HR 9164, known as the Employer Participation in Repayment Act, was introduced July 25, 2024. It seeks to amend Sec. 127 of the IRC.
If the legislation is enacted, the 2025 deadline would be removed for making employer payments of student loans under educational assistance programs. So, such payments would be permanently excluded from:
- federal income tax withholding
- FICA tax, and
- FUTA tax.
We’ll keep you posted.
