Employer Student Loan Repayment Alternate Tax Level

Forum|Forum|2 years ago
November 29, 2023
5 replies
33 views

My employer offers a student loan repayment plan where they make yearly payments directly to the student loan servicer. It is a qualifying educational assistance program however my employer has set the tax-free limit at $3,000 instead of the IRS allowed $5,250. If for example I they make a $5,000 payment they will add $2,000 ($5,000 minus $3,000) to my taxable income and my next paycheck will reflect the additional taxes.

When I file my taxes this year is it possible to subtract that $2,000 from taxable income since under the IRS guidelines it would qualify as tax fee?

Not A Product Question

Hal_Al

Level 15

Q. When I file my taxes this year is it possible to subtract that $2,000 from taxable income since under the IRS guidelines it would qualify as tax fee?

A. No. To qualify as tax free, your employer must process the payment as such, when they pay you.

What is your employer's explanation for not doing the full amount (up to $5250)?

Opus 17

Level 15

It’s a bit strange that the employer wouldn’t use the maximum exclusion, because if they are willing to pay $5000 toward your loan, but only treat $3000 as tax excluded, they also have to pay a little bit extra in employment taxes.

however, one of the hallmarks of this type of employee benefit plan is that it must treat all employees fairly and equally. Maybe the company has decided that some employee positions are not valuable enough to deserve the full $5000 of tax free assistance, and if they limit the assistance for some, they have to limit the assistance for everybody.

plmetzAuthor

Level 2

"they also have to pay a little bit extra in employment taxes"

I'm not familiar with how this works. If they don't count it as tax-free and it goes into the earnings then they also pay some additional employment taxes? Must mean that they figured those would be less then the amount of people they will discourage from using the program.

"if they limit the assistance for some, they have to limit the assistance for everybody"

I actually see this move (especially when they admit that it is to discourage use) to benefit higher earners who are able to absorb the increased taxes thus maybe making it unfairly benefit highly compensated employees.