OBBBA makes tax-free student loan reimbursements permanent 

The reconciliation tax law known as the “One Big Beautiful Bill Act” (OBBBA) (Pub. L. No. 119-21) makes permanent an Internal Revenue Code (IRC) provision that lets employers make tax-free payments toward employees’ student loans. The provision was set to expire on Dec. 31, 2025, but employers can now make the benefit a permanent part of their educational assistance programs.

IRC Section 127 excludes up to $5,250 per year of employer-provided educational assistance benefits from an employee’s gross income. Section 127 originally covered expenses incurred by an employee while pursuing an education (such as tuition, fees and books) and courses or instruction provided by an employer to an employee.

The Coronavirus Aid, Relief and Economic Security (CARES) Act (Pub. L. No. 116-136) added employer payments toward an employee’s “qualified education loan” to the types of benefits covered by Section 127 but only for payments made before Jan. 1, 2021. Congress temporarily extended the student loan provision as part of the Consolidated Appropriations Act, 2021 (Pub. L. No. 116-260), but the extension was set to expire at the end of this year.

In addition to making tax-free reimbursements permanent, OBBBA provides for the $5,250 limit to be indexed for inflation after 2026.

• Pub. L. No. 119-21, the “One Big Beautiful Bill Act” (Congress, July 4, 2025)
• Pub. L. No. 116-260, the Consolidated Appropriations Act, 2021 (Congress, Dec. 27, 2020)
• Pub. L. No. 116-136, the CARES Act (Congress, March 27, 2020)
• Reminder: Educational assistance programs can help pay workers’ student loans (IRS)
• Frequently asked questions about educational assistance programs (IRS)

• Virus aid bill offers help for retirement plans, student loans (Jan. 6, 2021)