The IRS has recently issued a Tax Tip to remind employers that they can use Internal Revenue Code (IRC) Section 127 educational assistance programs to pay principal or interest on any “qualified education loans” employees have incurred for their education. This option is available until December 31, 2025, according to an update by Murtha Cullina.
This timely alert from the IRS comes at a time when student debt is a significant issue for many employees. Making use of these programs could not only help alleviate some of the financial stress on employees but could also be a valuable tool for employers in attracting and retaining the best talent. Moreover, this could have a direct positive impact on the corporate culture by enabling employees to focus more on their work and less on their debt.
IRC Section 127 provides a framework for employers to provide educational assistance to their employees. The program permits employers to offer up to $5,250 per calendar year in educational assistance to an employee under a “qualified educational assistance program,” tax-free. The assistance must be used for expenses like tuition, fees and similar expenses, books, supplies, and equipment.
Interestingly, the Tax Tip extends the application of IRC Section 127 to include payment of student loans as a part of these educational assistance programs. This essentially allows employers to assist their employees with repayment of student loans without the employees incurring taxable income.
The IRS’s reminder could encourage more employers to take advantage of this opportunity and integrate student loan payment into their benefits package. As the December 31, 2025 deadline approaches, employers should consider this special tax treatment and consult with their legal and tax advisers on how best to implement and take advantage of these programs.