No Items in Cart 
On August 6th, 2025, the Internal Revenue Service (IRS) issued a reminder regarding educational assistance programs. Chiefly, the IRS wants to remind employers that they can use educational assistance programs to help employees pay down student loans through December 31st, 2025. The limit allowed for an employer to claim a tax exclusion is $5,250 per employee. At this point, the IRS’s announcement comes a week after the agency oversaw changes to section 530 of the Internal Revenue Code. This update created custodial savings accounts for children that parents, employers, and others can contribute to. In addition to following the established tax codes, employers must also comply with essential labor laws that affect most workplaces. Failure to comply with any labor or employment laws can lead to large fines and penalties.
What Is Educational Assistance?
Markedly, businesses can be granted tax breaks and exclusions for any educational assistance that is provided to employees. This assistance, however, must be given under an educational assistance program. Significantly, these programs can apply to both undergraduate and graduate coursework.
Specifically, educational assistance means amounts an employer pays or incurs for employee education expenses. These expenses generally include the cost of books, equipment, fees, supplies, and tuition. However, these expenses don't include the cost of a course or other education involving sports, games, or hobbies, unless the education:
- has a reasonable relationship to your business, or
- is required as part of a degree program.
Education expenses also do not include the cost of tools or supplies (other than textbooks) that employees are allowed to keep at the end of a school session. Nor do they include the cost of lodging, meals, or transportation. Finally, employees must be able to provide proof that the educational assistance provided was used for qualifying expenses.
Overview of Educational Assistance Programs
Under current law, employers may contribute up to $5,250 annually per employee toward student loan repayment without those payments being counted as taxable wages. This provision, expanded initially by pandemic relief measures, allows workers to receive tax-free help paying down qualifying student debt.
Notably, to qualify as an educational assistance program, the following tests must be met:
- The program only benefits employees who qualify under rules set up by you that don't favor highly compensated employees. To determine whether your program meets this test, don't consider employees excluded from your program who are covered by a collective bargaining agreement if there is evidence that educational assistance was a subject of good-faith bargaining.
- The program doesn't provide more than 5% of its benefits during the year for shareholders or owners (or their spouses or dependents).
- The program doesn't allow employees to choose to receive cash or other benefits that must be included in gross income instead of educational assistance.
- Reasonable notice of the program is given to eligible employees.
If an employer does not have an educational assistance plan or provides employees with assistance exceeding $5,250, they must include the value of these benefits as wages, unless the benefits are working condition benefits.
Employer Takeaways
In conclusion, the IRS issued this reminder to inform employers that they can still offer this benefit to employees until December 31st, 2025. Subsequently, even though the date of December 31 is mentioned, there has been no official word on whether this program will continue beyond January 1st, 2026, or if the IRS will end it altogether. For more information about setting up or administering educational assistance programs, visit Publication 15-B, Employer’s Tax Guide to Fringe Benefits.
