This article is for admins who want to offer student loan assistance as an employee benefit.
Employers can offer student loan assistance as a benefit to attract and keep talent. We make it simple to set up and manage this benefit while staying compliant with Internal Revenue Service (IRS) rules.
The IRS lets employers give up to $5,250 per employee per year in tax-free educational assistance. This includes payments toward student loan principal or interest on eligible educational loans.
Key rules:
This benefit applies only to the employee’s own loans (not for a spouse or dependent).
You can send payments directly to the lender or reimburse the employee.
You must include this benefit in a written educational assistance program.
Your program cannot favor highly compensated employees.
You can process up to $5,250 per employee per year as tax-free reimbursements in Gusto.
To set up tax-free student loan assistance in Gusto:
Go to Expenses.
Select Add expense.
Choose the employee and a date, categorize it as Educational Assistance, add a description and amount, and include supporting documents. Then, click Save.
Include documentation of the student loan payment.
Track the yearly total to make sure it does not exceed $5,250.
Documentation to keep:
Loan payment receipts or statements
Proof that the loan is for the employee’s education
A running total of assistance given
You must treat any contributions above $5,250 as taxable income.
To set up taxable student loan assistance in Gusto:
Go to Benefits.
Scroll to Custom Benefits.
Add or select a benefit type for student loan assistance.
Name the benefit (Example: Student Loan Assistance – Taxable).
Set Employee Deduction Per Pay Period to $0.
Under Company Contribution Per Pay Period, enter the taxable company contribution amount (above $5,250).
Click Save & Continue.
Choose the employees who should get this benefit.
Click Save.
When you run payroll, we’ll add this contribution to the employee’s taxable wages. The employee will not receive this as a payment since you already provided the benefit in another form.
To get the tax-free benefit, you must:
Create a written educational assistance program that explains the following. IRS Sample Plan Document (modify for your program).
The benefit
Who’s eligible
How the benefit is provided
The annual $5,250 limit
Notify all eligible employees about the program.
Make sure the program does not favor highly compensated employees.
Follow these guidelines to manage your student loan assistance program effectively:
Payment methods: Direct lender payments reduce the risk of misuse.
Verification: Confirm the loans are eligible, belong to the employee, and have proof of payment.
Record-keeping: Keep all records for at least 3 years, including totals per employee.
Track assistance so you do not exceed the annual tax-free limit, and report excess amounts as taxable income.
Communication: Explain the benefits, tax-free limit, what documents employees must provide, and what happens if they exceed the limit.
Jane owes $30,000 in student loans and pays $500 per month. Her employer contributes $600 per month ($7,200 per year).
Process $5,250 as tax-free reimbursements.
Record the extra $1,950 as taxable income through a custom fringe benefit.
This keeps the benefit compliant with IRS rules.
Q: What’s the annual tax-free limit for student loan assistance?
A: Employers can contribute up to $5,250 per employee per year tax-free.
Q: Can this benefit cover a spouse’s or child’s loan?
A: No. It only covers the employee’s own eligible student loans.
Q: How should I send student loan assistance payments?
A: You can send payments directly to the lender or reimburse the employee with proof of payment.
Q: What happens if I contribute over $5,250?
A: You must tax any amount over $5,250 as wages. To set that up, add a custom fringe benefit in Gusto.
Q: How long should I keep student loan assistance records?
A: Keep all documentation for at least 3 years.