New legislation permits tax-free employer contributions towards student loans for five years.
- Employers are permitted to make tax-free contributions of up to $5,250 per employee annually toward eligible education expenses, including tuition or student loan assistance, without raising an employee’s gross taxable income now through Dec. 31, 2025.
- This provides a tax-free benefit of $5,250 to both the employer and employee!
- Payments must be made directly to the employee’s student loan provider.
- Employers must comply with IRS Section 127 Eligibility and Plan Requirements.
Did you know this was an option?
- The CARES Act signed into law in March 2020 temporarily permitted employers to provide up to $5,250 of tax-exempt student loan payment assistance to employees through Dec. 31, 2020.
- This is an optional benefit employers can adopt; it is not mandatory.
- The Consolidated Appropriations Act (CAA) signed into law by President Donald Trump on Dec. 27, 2020, extends this benefit through Dec. 31, 2025. While this change is still temporary, many are advocating for permanency of this benefit.
Employee recruitment and retention
- Offering tuition reimbursement programs can be a useful tool in recruiting and retaining talented employees while simultaneously relieving some of the financial burden student loans present to employees.
- Retaining a current employee is usually more cost-effective than hiring and training a new employee.
- Education assistance programs can help boost a company’s branding efforts.
- Only about 8 percent of organizations are currently providing student loan repayment as a benefit, according to a 2019 survey of Society for Human Resource Management (SHRM) members.