KPMG report: Employer-provided student loan repayments, tax-free benefits

KPMG report: Employer-provided student loan repayments

Recent legislation allows employers to assist employees with repayment of their student loans on a tax-free basis through the end of 2025, up to an annual section 127 limit—currently $5,250 per employee.

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Employers have long had the flexibility to exclude assistance for current educational expenses from employee income, up to $5,250 each calendar year, if provided through a qualified educational assistance program under section 127. This benefit has been often viewed as a valuable component to the overall compensation and benefits package made available to attract and retain a talented workforce. However, exclusion from employee income has only been available for current educational expenses so employees who are not currently enrolled in courses could not benefit.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Pub. L. No. 116-136) added a temporary provision to include student loan repayment as an alternative to assistance with expenses for current education. In other words, employers can help employees pay down student loans for prior educational expenses on a tax-free basis.

KPMG observation

The revision can significantly open up opportunities to provide meaningful tax advantaged benefits to the entire workforce to the extent they are repaying qualified student loans.

Read a February 2021 report [PDF 78 KB] prepared by KPMG LLP: What’s News in Tax: Employer Provided Student Loan Repayments Graduate to Tax-Free Benefits for the Next Several Years

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