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 be used to 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.
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.
Important Dates
- March 27, 2020 – The option to use educational assistance programs to pay for employees’ student loans became available for payments made after this date.
- December 31, 2025 – The ability to use educational assistance programs to pay for student loans is currently set to expire on this date.
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 information on other requirements, see IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits, or Publication 970, Tax Benefits for Education.
Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.
