🎓 How Businesses Can Make Tax-Deductible Student Loan Payments for Employees — Updated for 2025

alison882
Jul 22
2 min read

Student loan debt has long been a financial weight on employees—and a missed opportunity for employers. But thanks to the Big Beautiful Bill (BBB) passed on July 4, 2025, businesses now have a permanent and tax-advantaged way to help.

If you’re a business owner or HR leader, this is a key benefit to understand—and potentially roll out—as part of your recruitment and retention strategy.

💡 What Was the Rule Before the BBB?

Under the CARES Act (2020), employers were temporarily allowed to make tax-free student loan payments of up to $5,250 per employee, per year through December 31, 2025. These payments:

Did not count as income to the employee.
Were fully deductible to the employer.
Had to be made under a formal educational assistance program governed by Section 127 of the Internal Revenue Code.

That temporary measure was later extended through 2025—but always set to expire.

✅ What Changed Under the BBB?

The BBB made this benefit permanent.

Here’s what that means for your business starting in 2025 and beyond:

1. Permanent Tax-Free Status

Employers can continue to make up to $5,250 per year in student loan payments tax-free to employees.

Employees don’t report it as income.
Employers deduct the expense like any other benefit.

2. No Expiration Date

This benefit is now a permanent feature of Section 127.

No need to wait on annual Congressional renewals.
Employers can confidently build it into long-term benefit plans.

3. Flexibility in Program Design

Payments can be made:

Directly to the lender (preferred).
Or reimbursed to the employee (with proper substantiation).

The educational assistance program must still:

Be in writing.
Not favor highly compensated employees.
Be offered fairly across staff (with possible full-time/tenure-based eligibility tiers).
Exclude cash alternatives or substitute wage reductions.

💼 Why Employers Should Care

Offering a student loan repayment benefit:

Helps attract and retain younger, debt-carrying talent.
Positions your business as an employer that invests in people.
Offers a strategic tax deduction—without increasing your payroll tax exposure.

🔹 Example: A company with 10 eligible employees paying $5,000 each in annual student loan support:

Provides $50,000 in tax-free aid.
Receives a $50,000 deduction.
Strengthens its employer brand.

🧠 What Employees Should Know

This benefit:

Is not taxable income (unlike bonuses or raises).
Helps reduce long-term debt and interest accrual.
Doesn’t require you to go back to school—it’s for existing student debt.

🚀 Implementation Tips for Employers

Draft or update your Section 127 plan to include student loan repayment. (contact our office for assistance)
Communicate clearly with your team about eligibility, limits, and process.
Coordinate with payroll or benefits providers to ensure proper tax treatment.
Document all payments—whether reimbursed or paid directly.

📣 Final Word

The BBB just made a smart employee benefit even smarter. With student loan repayment now a permanent, tax-deductible perk, businesses have a powerful tool to stand out in today’s competitive hiring landscape.

If you’re looking for ways to reduce your company’s tax liability and support your team in a meaningful way—this is it. Schedule an appointment to talk to us about it. https://topdogtax.taxdome.com/en-us/signup