How much can an employer pay toward my student loans tax-free?

Up to $5,250 per calendar year. Under IRC §127, an employer can pay principal or interest on your qualified education loan — directly to the lender or as a reimbursement to you — and you pay no federal income tax and no 7.65% FICA on it, while the employer skips its matching 7.65% FICA. This was a temporary pandemic-era benefit set to expire on December 31, 2025; the 2025 law (OBBBA / P.L. 119-21 §70412) made it permanent for payments made after that date, with inflation indexing starting in 2027.

Is the $5,250 shared with tuition assistance?

Yes. Section 127 has one $5,250 cap covering both tuition-type educational assistance and student-loan repayment combined. The IRS states the total you can exclude for loan payments and other educational assistance combined is $5,250 per calendar year. You cannot get $5,250 of tuition assistance AND another $5,250 of loan repayment in the same year — if your employer already used $3,000 on tuition, only $2,250 of loan repayment can be tax-free.

What does the employer save?

The employer avoids its matching FICA — 6.2% Social Security plus 1.45% Medicare — on the excluded amount, because it isn't 'wages.' At the full $5,250 cap that's $5,250 × 7.65% = $401.63, versus paying the same $5,250 as taxable wages or a bonus. The income-tax deduction is a wash (the payment is deductible compensation either way), so the avoided payroll tax is the entire employer-side benefit. For an employee already over the $184,500 Social Security wage base, the employer saves only the 1.45% Medicare ($76.13), not the full amount. FUTA is also avoided but adds about $0 because its $7,000 wage base is already used up.

Does the employee save FICA too, or just income tax?

Both. Section 127 amounts are excluded from wages for federal income-tax withholding (§3401(a)(18)) AND for FICA (§3121(a)(18)) AND for FUTA (§3306(b)(13)) — it is not one of the income-tax-only fringe benefits. A typical employee under the Social Security wage base saves their marginal income-tax rate plus 7.65% FICA. Above the $184,500 wage base the FICA portion is Medicare-only (1.45%, or 2.35% once the 0.9% Additional Medicare surtax applies).

Can my employer pay off my Parent PLUS loan for my child tax-free?

No. The §127 loan clause covers a qualified education loan 'incurred by the employee for education of the employee' — your own education only. That is narrower than the student-loan-interest deduction, which also covers a spouse or dependent. A Parent PLUS loan you took out for a child, or a loan for your spouse's education, does not qualify for the tax-free employer benefit.

If my employer pays my student loan interest, can I still deduct it?

No — no double benefit. Interest paid by your employer and excluded from your income under §127 cannot also be counted toward your up-to-$2,500 student-loan-interest deduction under §221 (§127(c)(7) and §221(e)(1) both deny it). Only the interest portion would ever have been deductible anyway; principal never was.

Is the employer student loan benefit taxable in any state?

In most states the federal exclusion flows through automatically, so there's no state income tax on it. California is the notable exception: its static federal-conformity date predates the clause that added student-loan repayment to §127, so employer student-loan repayment is taxable wages for California personal income tax. A conformity bill, AB 386, failed on February 2, 2026. Check your own state; this tool has a 'does your state conform?' toggle.

Will the $5,250 cap go up?

Starting in 2027 the cap is inflation-indexed under §127(d): the increase over $5,250 is rounded to the nearest $50 (it can round up — unusual for a tax provision). 2025 and 2026 stay at $5,250. The exact 2027 figure doesn't exist yet — the IRS publishes it in its annual inflation-adjustment Revenue Procedure, expected in fall 2026 — so this calculator uses $5,250 until then rather than guessing.

Employer Student Loan Repayment Tax Benefit Calculator (2026)

Last updated: August 1, 2026

How much is your employer putting toward your student loans this year?

$5,250 a year is the most that can come to you tax-free

Money your employer pays on your student loan this year, either straight to the lender or paid back to you. Both the balance you owe and the interest count. It has to be a loan for your own schooling, so a Parent PLUS loan you took out for your child does not count. Anything above $5,250 still reaches you, it is just taxed like ordinary pay.

What federal tax rate do you pay on your next dollar of income?

Not sure? 22% fits most single people earning roughly $50,000 to $105,000

This is your top tax bracket, the rate the next dollar you earn would be taxed at. 22% also fits most couples earning roughly $100,000 to $210,000. Because this benefit is kept out of your pay from the start rather than written off later, you save that full rate, so someone in the 37% bracket keeps 37 cents of every dollar.

Do any of these apply to you?

Tick the ones that do and this will ask you about them. If none of them do, which is the usual case, just carry on.

My employer also paid for classes, tuition or books for me this yeartuition help and loan help share one $5,250 limit, so tuition help leaves less room I will earn more than about $120,000 this yeartwo payroll taxes only start to bite up there, and they change what you save I pay income tax to my statenine states charge none; of the rest, California is the one that still taxes this benefit

Why these three and nothing else

Nothing else on your tax return changes what this benefit is worth. The three above are the only things that do: tuition help eats into the same yearly limit, high pay changes which payroll taxes you were going to owe anyway, and your state may or may not follow the federal rule. Leave all three unticked and you get the plain federal saving on its own.

How much has your employer paid toward your classes, tuition or books so far this year?

This only counts if it came out of the same workplace education benefit

It matters because tuition help and loan help share one $5,250 limit for the year, so tuition help leaves less room for tax-free loan payments. Money you paid for classes yourself does not count here, and neither does help from anyone other than your employer.

What will the rest of your pay be this year, not counting this benefit?

Used only to work out the payroll tax, nothing else

If this plus the benefit stays under $184,500, the payroll-tax saving is the straight 7.65%. Above that line the 6.2% Social Security part drops away, because you had already paid all the Social Security tax you owe for the year, and only the 1.45% Medicare part is saved.

How do you file your tax return?

On my ownsingle, or head of household Together with my husband or wifemarried, one return between us Married, but we each send our own returnmarried filing separately

This sets the pay level where an extra 0.9% Medicare tax starts

$200,000 if you file on your own or as head of household, $250,000 married filing together, $125,000 married filing separately. Below your line it changes nothing at all.

What state tax rate do you pay on your next dollar of income?

Type it as a plain number, so 9.3 for 9.3%

Leave it at 0 to skip the state part altogether. In a state that follows the federal rule this is money you save as well. In California it is money you still owe, which eats into the federal saving. California's top rates run from 9.3% to 13.3%.

Does your state tax this benefit anyway?

No, my state leaves it untaxednearly every state follows the federal rule here Yes, my state still taxes itCalifornia, whose conformity date predates the loan-repayment rule

California is the one state known to tax it

Most states start from your federal income and update their rules regularly, so this benefit arrives untaxed there too. California's conformity date is fixed at a point before the loan-repayment clause was added, so it still treats the money as wages. A bill to change that, AB 386, failed on February 2, 2026. A few other states also freeze their conformity date, so it is worth checking your own.

These are example numbers. Type yours to see your own.

Your employer has to have a written plan for this to be tax-free

Section 127 only makes the money tax-free if your employer runs a proper written educational-assistance plan and offers it across the workforce rather than to the people at the top, and the loan has to be for your own schooling. The full list of what the plan has to do is further down this page. One more catch: if your employer pays your loan interest tax-free, you cannot also claim that same interest as the student-loan-interest deduction on your own return.

An employer can pay up to $5,250 per year toward an employee's student loans (principal and interest, paid to the lender or reimbursed to the employee) completely tax-free under IRC §127. The employee pays no federal income tax and no 7.65% FICA on it, and the employer skips its matching 7.65% FICA too. This was a temporary pandemic-era perk set to expire 12/31/2025 — the 2025 law (OBBBA / P.L. 119-21 §70412) made it permanent, with inflation indexing starting in 2027. Enter the benefit to see exactly what the employee and the employer save, how the shared $5,250 cap works with tuition assistance, and the high-earner and California wrinkles. Everything runs in your browser — nothing is uploaded.

For general information only — not tax, legal, or financial advice. This calculator shows the federal income-tax and FICA effects of an employer §127 educational-assistance benefit and the employer's matching-FICA saving, using 2026 figures ($5,250 cap; $184,500 Social Security wage base). It assumes a qualifying written plan is in place and the payments are for the employee's own qualified education loan. Confirm your own situation with your employer's benefits team and a tax professional.

The headline, and the two things people get wrong about it

What's true: $5,250 of employer student-loan repayment a year is genuinely tax-free — federal income tax and the 7.65% employee FICA, with the employer avoiding its 7.65% match. On the full cap that's about $1,557 saved by a 22%-bracket employee ($1,155.00 income tax + $401.63 FICA = $1,556.63) and $401.63 saved by the employer, versus paying the same $5,250 as a taxable bonus.

Mistake #1 — "it's a separate $5,250 on top of tuition assistance." No: tuition-type assistance and loan repayment share one $5,250 cap. If your employer already put $3,000 toward tuition, only $2,250 of loan repayment is tax-free this year; the rest is taxable wages.

Mistake #2 — "the employer always saves ~$402 per employee." Only for employees under the $184,500 Social Security wage base. For a highly paid employee already over it, the 6.2% Social Security portion is gone and the employer saves just 1.45% Medicare = $76.13. This calculator handles that straddle: answer Yes to the "will you earn more than about $120,000" question and enter the employee's other pay.

Plan requirements — IRC §127(b)

The benefit is tax-free only if the employer maintains a qualifying educational assistance program. The statute requires all of the following:

(b)(1) Written plan. A separate written plan of the employer for the exclusive benefit of its employees to provide educational assistance.
(b)(2) Nondiscrimination. Benefits must not discriminate in favor of highly compensated employees (within the meaning of §414(q)) or their dependents.
(b)(3) 5%-owner limit. No more than 5% of the amounts paid during the year may go to more-than-5% owners (or their spouses or dependents).
(b)(4) No cash-out choice. The program must not give employees a choice between educational assistance and other taxable pay — it can't be an opt-in alternative to salary.
(b)(5) No funding requirement. The program is not required to be funded.
(b)(6) Notification. Reasonable notification of the program's availability and terms must be given to eligible employees.

The IRS provides a free sample written plan document in its educational-assistance FAQ. This calculator does not check plan qualification — it assumes a qualifying plan is in place.

No double-dipping on the interest — §127(c)(7) & §221(e)(1)

If your employer pays your student-loan interest tax-free under §127, you cannot also count that interest toward the up-to-$2,500 student-loan-interest deduction under §221. Section 127(c)(7) denies any other deduction or credit for an amount excluded under §127, and §221(e)(1) specifically bars the interest deduction "for which an exclusion is allowable under section 127 … by reason of the payment by the taxpayer's employer." Only the interest portion of a loan payment was ever §221-eligible; principal never was. So the excluded employer-paid interest is simply out of the §221 calculation.

California does not conform — the benefit is taxable there

Most states start from federal income and update their conformity regularly, so the §127 exclusion flows through and there's no state income tax on the benefit. California is the exception. Its static federal-conformity date predates the CARES Act clause that added student-loan repayment to §127, so while California conforms to the traditional tuition-type §127 exclusion, employer student-loan repayment is taxable wages for California personal income tax. Conformity bills have repeatedly failed — most recently AB 386, which failed on February 2, 2026. If you're a California employee, answer Yes to the "do you pay income tax to your state" question, pick the California option, and enter your California rate to see the state tax that offsets part of the federal saving. Other static-conformity states may also tax it — check your own state.

How the numbers work

The 2025 law widely known as OBBBA (P.L. 119-21) — the same law behind this site's other 2025-tax-law calculators — made the student-loan-repayment piece of §127 permanent (§70412, effective for payments made after December 31, 2025) after it had been temporary since the CARES Act. Here's the two-sided math at the full 2026 cap, for a typical employee under the Social Security wage base:

Employee income tax saved: $5,250 × your marginal rate (22% → $1,155.00; 24% → $1,260.00; 37% → $1,942.50).
Employee FICA saved: $5,250 × 7.65% = $401.63 (6.2% Social Security + 1.45% Medicare) — Medicare-only above the $184,500 wage base.
Employer FICA saved: $5,250 × 7.65% = $401.63, versus paying the same amount as taxable wages. No 0.9% Additional Medicare match (that's employee-only), and FUTA adds ~$0 because its $7,000 base is already used up.

Unlike the below-the-line deductions in this site's other 2025-law calculators, the §127 exclusion reduces your wages at the source — the amount never appears in Box 1, 3, or 5 of your W-2. So it also lowers AGI-driven figures (IRMAA, ACA subsidies, the §221 phase-out), not just your tax.

Indexing after 2026: starting in 2027 the $5,250 is inflation-adjusted (§127(d)); the increase over $5,250 rounds to the nearest $50 (it can round up). The official 2027 figure comes from the IRS annual inflation-adjustment Revenue Procedure (expected fall 2026), so this tool uses $5,250 until then rather than guessing.

A worked example: split between tuition and a loan

Say your employer's §127 program put $3,000 toward a class you took and you also want it to pay $3,000 toward your student loan, and you're in the 22% bracket earning $80,000. Because the two share one $5,250 cap, only $2,250 of the loan payment fits under the cap tax-free; the other $750 is taxable wages. On the $2,250 you save $495.00 income tax + $172.13 FICA = $667.13; on the $750 excess you owe $165.00 income tax + $57.38 FICA. Your employer saves $401.63 FICA on the full $5,250 it excluded and pays $57.38 FICA on the $750 excess. Move any tuition assistance down and more of the loan payment becomes tax-free — one cap, not two.

Common questions

Principal or just interest? Both. §127(c)(1)(B) covers "principal or interest on any qualified education loan," paid to the lender or reimbursed to you.

My own loans only? Yes — "for education of the employee." A Parent PLUS loan you took for a child, or a spouse's loan, doesn't qualify (that's narrower than the §221 interest deduction).

Does it lower my AGI? Yes — it's excluded from wages at the source, so it never enters your AGI, which helps AGI-driven items too.

Two employers, $5,250 each? No. The $5,250 is per individual per year across all employers; excess is reconciled at filing.

Is anything saved or uploaded? No — the calculator is fully client-side; your numbers never leave your browser.

Sources: 26 U.S.C. §127 — (a)(2) $5,250 cap, (b)(1)–(6) plan requirements, (c)(1)(B) loan-payment clause (made permanent by P.L. 119-21 §70412, effective for payments after 12/31/2025), (c)(7) double-benefit denial, (d) inflation adjustment; §3121(a)(18) FICA exclusion; §3401(a)(18) withholding exclusion; §221(e)(1) student-loan-interest double-benefit denial; IRS FS-2026-10 (combined-cap language, sample plan) and Pub 15-B (2026); SSA 2026 wage base $184,500; California non-conformity, Assembly Rev & Tax analysis of AB 386. (Page last reviewed: July 13, 2026.)

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Employer Student Loan Repayment Tax Benefit Calculator (2026)

How much is your employer putting toward your student loans this year?

What federal tax rate do you pay on your next dollar of income?

Do any of these apply to you?

How much has your employer paid toward your classes, tuition or books so far this year?

What will the rest of your pay be this year, not counting this benefit?

How do you file your tax return?

What state tax rate do you pay on your next dollar of income?

Does your state tax this benefit anyway?

The headline, and the two things people get wrong about it

Plan requirements — IRC §127(b)

No double-dipping on the interest — §127(c)(7) & §221(e)(1)

California does not conform — the benefit is taxable there

How the numbers work

A worked example: split between tuition and a loan

Common questions

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Employer Student Loan Repayment Tax Benefit Calculator (2026)