Details of Public Law 119-21, section 70412 , One Big Beautiful Bill Act

This provision permanently enables employers to provide a student loan repayment benefit to employees on a tax-free basis. The repayment benefit was temporary under the Coronavirus, Aid, Relief, and Economic Security Act (CARES Act) (Public Law (P.L.) 116-136, section 2206) for payments made after March 27, 2020 and before January 1, 2021, and the Consolidated Appropriations Act, 2021 (P.L. 116-260, section 120) extended the provision through 2025.

This provision makes the exclusion permanent, applicable to payments made by an employer on behalf of an employee after December 31, 2025. Under the provision, an employer may contribute up to $5,250 annually toward payment of an employee’s student loans, and such contribution would be excluded from the employee’s income. The $5,250 cap applies to both the student loan repayment benefit as well as other educational assistance (e.g., tuition, fees, books) provided by the employer.

Additionally, beginning in taxable year 2025, the provision provides an inflation, cost-of-living adjustment for the $5,250 income exclusion cap.

California does not conform to federal rules relating to educational assistance programs under IRC section 127, but has stand-alone language in RTC section 17151 that allows for an exclusion from gross income of an employee for amounts paid or incurred by their employer, not to exceed $5,250, for education assistance pursuant to an educational assistance program, similar to IRC section 127. As a result, California does not conform to IRC section 127 federal exclusion for certain employer educational assistance, including payments of student loans, or the inflation adjustment to the income exclusion cap.