Employers Can Help Cover Education Expenses, Tax-Free

Yes, your company can help pay down student debt—and it’s tax-free.

Under IRS rules, educational assistance programs can be used by employers to help with employees’ student loans and other qualified education expenses, without adding to their taxable income.

This option has been available since March 27, 2020, and while it’s not new, many business owners still aren’t taking advantage of it. Here’s how it works.

What qualifies as a tax-free education benefit?

Employers can cover up to $5,250 per employee each year tax-free. The payments can go toward:

• Tuition and fees
• Books and course materials
• Equipment and supplies
• Qualified education loans (including principal and interest)

Payments can be made to the employee, directly to the lender, or to the educational institution. The $5,250 annual cap will start adjusting for inflation beginning in 2027.

What doesn’t count?

The IRS has provided specifics about what doesn’t qualify. Meals, lodging, and transportation are excluded, as are tools or supplies the employee can keep after the course (like a laptop). Recreational courses (think hobbies or sports) don’t count unless they’re job-related or part of a degree program.

Why consider offering this?

Student loan debt is a major burden for many working adults. Offering education assistance sends a strong message that you’re invested in your team’s growth and well-being. It can also give your business a recruiting and retention edge, especially in industries where talent is tough to keep.

You’ll want to have a written plan in place and make sure it meets IRS guidelines. For details, refer to Publication 15-B and Publication 970.

FAQs

1. Does an employer need a formal plan to offer tax-free student loan repayment or education assistance?
Yes. To qualify for tax-free treatment, employers must set up a written educational assistance program that follows IRS rules. This plan outlines who’s eligible, what’s covered, and how benefits are provided.

2. Can employees use employer-provided education assistance to repay existing student loans?
Yes. As long as the loans are considered “qualified education loans” by the IRS, employers can use an educational assistance program to help employees pay down both principal and interest.

3. What is the annual limit for employer-provided, tax-free education assistance per employee?
Employers can offer up to $5,250 per employee each year in tax-free education assistance. This applies to tuition, books, fees, and qualified student loan payments. Any amount above that is typically taxable as wages.