Did you know that employers can use educational assistance programs to help pay student loan obligations for their employees?

"The IRS wants to remind both employers and employees about this special feature," IRS Commissioner Danny Werfel said. "There is a limited window of time for this educational assistance program, and the IRS wants to make sure employers don't overlook this option that can help businesses attract and retain workers."

The Deadline

Educational assistance programs have been available for many years. However, the option to use them to pay student loans has been available only for payments made after March 27, 2020. Under current law, these payments will continue to be available until December 31, 2025.

The Terms

Traditionally, educational assistance programs have been used to pay for books, equipment, supplies, fees, tuition and other education expenses for the employee. However, these programs can now also be used to pay principal and interest on an employee's qualified education loans. Additionally, payments made directly to the lender, as well as those made to the employee, qualify.

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. In a tight labor market, worthwhile 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 IRS Publication 15-B, Employer's Tax Guide to Fringe Benefits. Details on what qualifies as a student loan are provided in Chapter 10 of IRS Publication 970, Tax Benefits for Education.

If you would like guidance on other fringe benefits you can offer to potential employees, click here to schedule an appointment with one of Gold Standard's seasoned business advisors.

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