October 3, 2023
By: Melanie N. Aska
The IRS recently issued a “Tax Tip” reminding that employers that offer IRC Section 127 educational assistance programs can use those programs until December 31, 2025, to pay principal or interest on any “qualified education loans” employees incurred for their education.
An employee who receives educational assistance benefits from an employer’s IRC Section 127 educational assistance program can exclude up to $5,250 of those benefits from federal gross income each taxable year.
Educational assistance programs have been available for many years. Traditionally, such programs have been used to pay for employees’ books, equipment, supplies, fees, tuition and other education expenses.
COVID-19 era federal legislation expanded the definition of excludable “educational assistance” to include payments made, after March 27, 2020 and before January 1, 2026, to an employee or to a lender, of principal or interest on any “qualified education loan” (as defined in IRC Section 221(d)(1)) incurred by the employee for his or her education.
Now that the three-year payment pause on student loan repayments has ended, it is time for employers who have not already done so to decide whether to amend their existing IRC Section 127 educational assistance programs, or to establish new programs, so that those programs can be used until December 31, 2025, to help employees repay principal and interest on “qualified education loans.”
For more information on IRC Section 127 educational assistance programs, see IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits. For more information on what qualifies as a “qualified education loan,” see Chapter 10 (Employer-Provided Educational Assistance) in IRS Publication 970, Tax Benefits for Education.
If you have any questions about this news alert, please contact Melanie N. Aska at maska@murthalaw.com or 617.457.4131.
Related Information
