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Employment Law Update: Employers Can Assist with Pretax Student Loan Repayment

Many employers may be unaware of the ability to establish Educational Assistance Programs that allow their employees to repay educational loans with pretax dollars. In March 2020, the IRS established the option for employers to include, in a qualifying Educational Assistance Program (see IRS Code Section 127), the ability of employees to pay back their college loans, including principal and interest, with pretax dollars.

Currently, until the December 31, 2025, regulatory sunset, repayment of student loans will be considered as a qualifying “educational assistance” which can be excluded from employee income, and in most cases, excluded from federal withholding, Social Security, Medicare and Federal FUTA tax. The loans may have been established prior to the initial employment.

There is still time for employers to establish a program and take advantage of the benefits to both the employer, and their employees. Currently, participants may exclude up to $5,250.00 per year from income, if used to pay student loans through an Educational Assistance Program.

Employers with a workforce including recent college graduates are well advised to immediately consider taking advantage of this “found money” opportunity. Recruitment initiatives can be enhanced by publicizing this benefit. 

Whiteford employment attorneys can assist employers in establishing Educational Assistance Programs in time for employees to enjoy the financial benefits in 2024 and 2025.

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