Student Loan Forgiveness: 3 Ways the IRS Says Your Employer Can Help Pay Your Debt Tax-Free
Federal student loan borrowers have about a month to prepare for the resumption of payments following a payment moratorium that began in March 2020, during the early days of the COVID-19 pandemic. If you’re worried that you can’t afford your payments — especially now that the Biden loan forgiveness program has been shot down – one option is to seek help from your employer.
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In an Aug. 24 news release, the IRS reminded employers that they can offer workers up to $5,250 tax-free annually as part of their educational assistance benefits. According to the news release, Employers with educational assistance programs can use them to help pay student loan obligations for their employees.
“The IRS wants to remind both employers and employees about this special feature that can help with student loans,” IRS Commissioner Danny Werfel said in a statement. “There is a limited window of time for this educational assistance program, and the IRS wants to make sure employers don’t overlook this option that can help businesses attract and retain workers.”
Educational assistance programs have been available for many years, the IRS noted, but the option to use them to pay student loans has been available only for payments made after Mar. 27, 2020. Under current law, they will remain open until Dec. 31, 2025.
By law, tax-free benefits under an educational assistance program are limited to $5,250 per employee per year. Normally, the assistance provided above that level is taxable as wages.
Here are three ways the IRS says your employer can help pay your debt tax-free:
Use the educational Use the educational assistance program to pay the employee’s tuition and fees.
Pay for the employee’s books, equipment, supplies, and related education expenses.
Pay the principal and interest on qualified education loans. Payments made directly to the lender and those made to the employee qualify.
The IRS advises that employers who don’t have an educational assistance program consider setting one up to provide more benefits in a tight labor market. The agency will offer a free 75-minute webinar beginning at 2 p.m. ET on Thursday, Sept. 14. Registration and other information can be obtained by visiting the Webinars for Tax Practitioners page or the Webinars for Small Businesses page on IRS.gov.
The IRS will share additional information through social media posts and e-newsletters that reach the small business, tax-exempt and tax professional communities.
Providing $5,250 a year in student loan relief – or about $437 a month – would be welcome news to borrowers struggling to pay down their debt. About 48 million borrowers have student loan debt. According to the Education Data Initiative, the average federal student loan debt is $37,574 per borrower as of April 2023. The average private student loan debt is less than $55,000 per borrower.
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This article originally appeared on GOBankingRates.com: Student Loan Forgiveness: 3 Ways the IRS Says Your Employer Can Help Pay Your Debt Tax-Free
