As millions of student loan borrowers await further details on President Biden’s student loan relief, your employees likely have student loans on the brain. Now is a good time to review the available options for providing your employees with tax-preferred education benefits in case they ask.
One option is to qualify the benefits as a working condition fringe. To qualify as a working condition fringe, the education must generally either maintain or improve skills required for the employee’s position or meet express requirements for continuing education imposed by you, the employer, or applicable law. But remember, expenses will not qualify if the education is required to meet the minimum requirements for qualification for the position or if the education qualifies the employee for a new trade or business. For example, expenses incurred toward a law degree generally will not qualify. Working condition fringe benefits are relatively flexible—assuming the requirements just mentioned are met—because no specific nondiscrimination requirements apply, no annual dollar limit applies, and no written plan is required.
Another option is to maintain an educational assistance program. An educational assistance program must be set forth in a written plan document and eligible employees must be given notice that the program is available. Most education-related expenses may be paid under the program other than tools or supplies (except for textbooks) that the employee may retain after completing a course of instruction; meals, lodging, or transportation; and education involving sports, games, or hobbies, unless the education involves the business of the employer or is required as part of a degree program. And through the end of 2025, qualifying student loan payments made by an employer on an employee’s behalf can also be made under an educational assistance program. Benefits under the program must be limited to $5,250 per employee per year and may not discriminate in favor of highly compensated employees.
And finally, you can avoid having to comply with any of the above rules by simply providing education benefits through an increase in employees’ taxable wages. Just be prepared for the inevitable feedback: “Hey, employer, leave us kids’ taxable wages alone!”
Source: Holland & Hart LLP – Brad Lowe