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February Question and Answer

QUESTION:

As an employee-retention move, is there any tax-advantaged way I can help my employees with their student debt?

ANSWER:

Consider implementing a qualified education assistance program to pay part of employees’ student loans. Now, through 2025, you can pay up to $5,250 a year per employee to help them make student loan payments and receive a tax deduction for your payments. This amount is excluded from employees’ income. Plus, under a new law in 2024, you can offer matching 401(k) contributions to employees based on their repayment of student loans. Participation is voluntary, and employees must opt-in.

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January 2023 Question and Answer

QUESTION:

Is student loan debt forgiveness taxable?

ANSWER:

Thanks to the American Rescue Plan Act enacted in 2021, student loan debt forgiveness isn’t considered taxable income on your federal tax return. This exclusion from income is valid for any student loans forgiven in 2021 through 2025. Starting in 2026, the old rules will apply, making student debt forgiveness taxable.

But your state may have different tax rules for student loan forgiveness. Currently, a handful of states consider it taxable income. So, if you have questions about your situation, speak with your tax professional.