IRS Section 127 Changes 2025: What Employers and Employees Need to Know
In recent years, IRS Section 127 changes 2025 has played a significant role in helping employers support the educational and financial well-being of their employees. Under this provision of the Internal Revenue Code, employers can provide up to $5,250 annually in tax-free educational assistance to each employee. Traditionally, this benefit was limited to covering tuition, books, and similar education-related expenses. However, with the introduction of the CARES Act in 2020, a major enhancement was made, allowing employers also to use this amount for student loan repayment assistance.
This expansion, which was set to help both employers and employees during the COVID-19 pandemic, is now facing a critical turning point. Unless extended through new legislation, IRS Section 127’s student loan repayment benefit will expire on December 31, 2025.
What’s Changing in 2025?
The temporary expansion of Section 127 that includes student loan reimbursement is scheduled to end on December 31, 2025. After that date:
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Employers can no longer offer tax-free student loan repayment assistance under Section 127.
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The provision will revert to only covering education-related expenses such as tuition, books, and supplies.
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Any student loan payments made after December 31, 2025, will be considered taxable income to employees unless new legislation is passed.
What This Means for Employers
If your company currently offers or is planning to offer student loan repayment assistance through Section 127, it is essential to:
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Maximize benefits before the December 31, 2025, deadline.
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Inform employees of the upcoming change to allow them to take full advantage of the benefit.
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Consider advocating for legislative extension or exploring alternative educational benefits programs.
Employers should also ensure that their Section 127 plans are properly documented, compliant with IRS requirements, and reflect all eligible educational assistance options.
What This Means for Employees
Employees currently receiving student loan assistance tax-free through their employer should be aware that this benefit will likely become taxable after 2025, reducing its overall financial impact. Employees are encouraged to:
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Please take full advantage of this benefit before it ends.
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Inquire about any possible changes in company policy or benefits.
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Stay informed about any upcoming legislative developments that may extend or modify Section 127 benefits.
The Road Ahead
There is ongoing discussion in Congress to potentially extend or make permanent the expanded use of Section 127 for student loan repayment. However, as of now, the provision remains set to expire. Employers and employees alike should prepare for the 2025 changes and take proactive steps to utilize the benefit while it’s still available.
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