The Employer Participation in Repayment Act was passed into law In March 2020 as part of the CARES Act. While the program was set to expire on December 31, 2020, it has officially been extended until January 2026. The law allows employers to contribute up to $5,250 tax-free to their employees’ student loans.

Additionally, these expenses now include not only tuition, fees, and books for ongoing post-secondary education, but also includes payments by an employer to the employee or to a lender, of principal or interest on any qualified education loan.

Employers must have a written education assistance plan. Such a plan must not discriminate in favor of highly compensated employees nor can it provide eligible employees a choice between accessing educational assistance and other remuneration includible in gross income.

Businesses can deduct these costs as a business expense in determining their income tax liability, however, employers cannot use the same educational expenses paid for as the basis of other federal tax benefits (such as the Lifetime Learning Credit). Businesses can either collect information on employees’ loans to pay lenders directly, or they can verify funds are being used to pay student loan debt after adding the benefit to employees’ paychecks. Only the first $5,250 per year is tax-free, inclusive of both tuition assistance and student loan assistance.

For more details, see 26 U.S.C. Section 127 – Educational Assistance programs, Pub 15-B (2023) (The 2023 Employer’s Tax Guide to Fringe Benefits), and Pub 970 (Tax Benefits for Education, Chapter 10).