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On our blogs you will find our Tax Sherpa Stories series as well as additional posts covering all manner of tax topics. Some items are timely as there are multiple tax filing dates throughout the year and some items are important larger concepts.

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The Power of Educational Assistance Programs in Light of Student Loan Payment Resumption

October 18, 20231 min read


October 2nd, 2023, marked a significant shift as the federal government resumed student loan payments. With changes in income-based repayment rules, penalty rules, and more, there's a lot to unpack. But one aspect that's not getting enough attention is the revision to Section 127 of the Internal Revenue Code. Let's dive in.

The CARES Act and Its Extension:

The CARES Act introduced a $5,250 maximum exclusion that employers can use to pay student loans on behalf of their employees or their dependents. This amount is excluded from the employee's taxable income, making it a win-win for both parties.

Benefits for Employers and Employees:

Employers can use this as an attractive bonus for their employees, especially in a time when student loans are a significant burden. For employees, this means potentially less taxable income and more savings.

Things to Keep in Mind:

  • This benefit is primarily for the rank and file, not the owners.

  • No discrimination between high paid and low paid employees.

  • It can't be offered as an alternative to wages or other income.

As we approach the end of 2023 and look forward to 2024 and 2025, it's essential for employers to consider these educational assistance programs. They not only offer tax benefits but also serve as a valuable tool for employee retention and satisfaction.

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Neal McSpadden

Neal went from owing the IRS over $1,300,000 to Zero and in so doing discovered the world of tax planning. Since 2011 he's helped tens of thousands of clients save hundreds of millions of dollars on overpaid income taxes.

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A tax deduction reduces the amount of your income that is subject to taxation, which in turn can lower your tax liability. Common deductions include expenses like mortgage interest, student loan interest, and business expenses. A tax credit, on the other hand, is a direct reduction of your tax bill. This means if you owe $1,000 in taxes and have a $200 tax credit, your tax due would be reduced to $800. Some popular credits include the Child Tax Credit, the Earned Income Tax Credit, and credits for energy-efficient home improvements.

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