Help Your Employees Pay Off Student Loans — Up to $5,250 per Year, Tax-Free
As a small business owner, you can provide a powerful employee benefit that helps your team pay down student debt without increasing their taxable income.
Under current IRS rules, your company can pay or reimburse up to $5,250 per employee per year toward qualified student loans — covering both principal and interest — on a completely tax-free basis.
How It Works
You can pay the loan servicer directly or reimburse the employee. The $5,250 is excluded from the employee’s taxable income, does not appear on their W-2, and can be offered every year. Your business can fully deduct the payments as a legitimate business expense.
This benefit is available through the Employer-Provided Educational Assistance Program under Section 127 of the Internal Revenue Code.
Key Benefits
For Employees
Real help with monthly student loan payments
No additional taxes or reduction in take-home pay
Reduced financial stress and improved morale
For Your Business
A strong tool to attract and retain talent, especially younger workers
Enhances your benefits package without raising salaries
Fully deductible business expense
Important Rules to Remember
The $5,250 annual limit includes any other educational assistance you provide (tuition, books, training, etc.).
The loans must be qualified education loans used for the employee’s own higher education expenses.
You must maintain a written Educational Assistance Plan that complies with IRS rules and does not discriminate in favor of highly compensated employees.
Official IRS References
Publication 970 – Tax Benefits for Education (Chapter 10) → View here
Publication 15-B – Employer’s Tax Guide to Fringe Benefits → View here
Section 127 – Educational Assistance Programs → IRS FAQs
Recommendation for Small Businesses
This is one of the most attractive and tax-efficient benefits available today. Many small businesses are now including it in their benefits package to remain competitive in the job market.
Next Steps
Create or update your written Section 127 Educational Assistance Plan.
Consult with your CPA or tax advisor to ensure full compliance.
Clearly communicate the benefit to your employees.
Published by: Franklin Caraballo CPA
