Exclusion for Employer Payments of Student Loans

The Consolidated Appropriations Act, 2021 Act provides tax relief and tax incentives for individuals and businesses alike. Included in the numerous tax provisions is a five-year extension of the exclusion of up to $5,250 from income for payments of an employee’s education loans.

Normally, employee benefits provided under an employer’s nondiscriminatory educational assistance plan are not includible in the employee’s gross income to the extent the benefits do not exceed $5,250 for the tax year. Educational assistance means the employer’s payment of expenses incurred by or on behalf of an employee for education or the employer’s direct provision of education to an employee. Assistance includes, but is not limited to, tuition, fees, and similar payments, books, supplies and equipment. The employer’s plan must meet certain requirements to qualify.

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the definition of educational assistance was expanded to include the payment of student loans made before January 1, 2021. Payments made by an employer to either an employee or a lender to be applied toward an employee’s student loans can be excluded from the employee’s income. The payments can be of principal or interest on any qualified education loan that is incurred by the employee for the employee’s education. The Consolidated Appropriations Act, 2021 extends this exclusion to payments made before January 1, 2026.

The $5,250 cap applies to both the new student loan repayment benefit as well as other educational assistance (e.g., tuition, fees, books) provided by the employee. Any excess of benefits is subject to income and employment taxes.

Double benefit denied. No deduction is allowed for student loan interest payments paid by the employer that are excluded from the employee’s gross income.

Contact the Crosslin tax team at 615-320-5500 with any questions.  We are here to help!