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Employers: Don’t Miss Out on this Tax Advantage Set to Expire in 2025

As the deadline for resuming federal student loan payments looms closer, there's a little-known opportunity that employers could be offering to ease the financial burden of their workers. The Internal Revenue Service (IRS) is issuing a reminder that employers have the ability to provide up to $5,250 in tax-free educational assistance benefits to their employees. This financial aid can significantly alleviate the costs of education, including tuition and fees. It's a benefit that has been available for years, but it wasn't until March 2020 that lawmakers expanded its scope to include tax-free subsidies for both federal and private student loan payments. However, there's a catch – this provision is set to expire on December 31, 2025.


The beauty of this benefit is that employers have the flexibility to design their educational assistance plans according to their preferences, covering various expenses considered "qualified" by federal guidelines. Surprisingly, despite this attractive opportunity, not many employers have chosen to include student loan debt as part of their benefits package since the policy was introduced in 2020. According to the Society of Human Resource Management's 2023 employer benefits survey, only 8% of organizations currently offer student loan benefits to their employees, a figure that has remained stagnant for five years. In stark contrast, 48% of these organizations provide tuition assistance.


The reasons behind this substantial gap between student loan assistance and tuition support remain somewhat mysterious. One potential explanation is the lack of public awareness surrounding this option. Lawmakers who championed tax-advantaged employer benefits to aid with student loan payments are concerned that the information hasn't reached enough employers. They've called upon the IRS to intensify its efforts in raising awareness about this opportunity.


In a bid to bridge this knowledge gap, the IRS Commissioner, Danny Werfel, held a free webinar scheduled for September 14, aimed at educating employers about this provision. In his words, "The IRS wants to make sure employers don't overlook this option that can help businesses attract and retain workers."


Understanding the Value of this Benefit for Student Loan Borrowers


For individuals grappling with student loans, the monthly repayments can be a significant strain on their finances. The prospect of receiving reimbursements of up to $5,250 annually, which translates to nearly $438 per month, can be a game-changer for their financial well-being. Even receiving smaller amounts, such as $100 or $200 per month to offset payments, can make a meaningful difference in their financial stability.


This benefit becomes even more crucial as the lengthy pause in federal student loan payments, initiated in 2020, has come to an end. Prior to this pause, the Federal Reserve reported that monthly student loan payments typically ranged from $200 to $299. Therefore, the resumption of payments will be a financial jolt for many borrowers.


However, for those who are also servicing private student loans, the monthly financial commitment is likely to be substantially higher. Private student loans often come with less favorable terms, higher interest rates, and less flexibility in repayment options, making them even more challenging to manage.


Unlocking Employer Assistance for Student Loan Debt


Now that you're aware of this underutilized opportunity, let's delve into how employers and employees can unlock the potential benefits of tax-free student loan assistance.


For Employers:


1. Educate Yourself: As an employer, the first step is to familiarize yourself with the IRS guidelines regarding educational assistance benefits. Understanding the rules and limits will enable you to craft a comprehensive plan that suits your organization's needs.


2. Design a Holistic Plan: While you're not obligated to include student loan assistance in your benefits package, considering the financial challenges faced by employees, it can be a powerful incentive to attract and retain top talent. Design a plan that covers tuition, fees, and student loan payments, if possible.


3. Promote Awareness: Ensure that your employees are well informed about the benefits you offer. Conduct workshops, provide informative materials, and make use of the IRS's outreach resources to raise awareness about the available benefits.


4. Seek Professional Guidance: Consulting with a tax professional or financial advisor can help you navigate the complexities of tax-free educational assistance benefits, ensuring compliance with IRS regulations.


5. Evaluate ROI: Assess the impact of these benefits on your organization's bottom line. While it may seem like an added expense, attracting and retaining skilled employees can ultimately lead to increased productivity and profitability.


For Employees:


1. Inquire with HR: If you're currently managing student loan debt, reach out to your HR department to inquire about the benefits your employer offers. Ensure you understand the specifics of what's covered and how to take advantage of it.


2. Maximize the Benefit: If your employer provides assistance, make the most of it. This means keeping track of eligible expenses, submitting necessary documentation, and staying updated on any changes or deadlines.


3. Plan Your Finances: Use the assistance to strategically manage your student loan payments. Consider allocating additional funds towards high-interest loans or building an emergency fund with the extra cash flow.


4. Advocate for Change: If your organization doesn't currently offer student loan assistance, consider discussing its potential inclusion in the benefits package with HR or management. Share the potential benefits of attracting and retaining talent with this valuable offering.


5. Stay Informed: Keep an eye on updates and changes to IRS regulations regarding educational assistance benefits. This will help you adapt your financial strategy accordingly.


As the 2025 expiration of this tax advantage approaches, now is the time for employers who have not already done so to take advantage of the opportunity. By doing so, employees can navigate the complexities of student loan repayment more effectively and work towards a brighter, debt-free financial future. In the meantime, employers will be rewarded by attracting and retaining top talent.


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