As an incentive to employment my company is making a large lump sum payment towards my student loan debt, lets for this example say $5,000 (the real amount is different). They have inquired about my guarantor and wish to send the amount directly to them. I had planned on paying off my private loans because of higher interest rate.

1.) Do I need to claim this as personal income (of which income tax will reduce that amount), or is there another way?

2.) Since I have federal loans based on income contingency, this will potentially artificially inflate my net income making next years monthly payments higher than what I actually can afford?

My question is does my company need to report this as income, and I would need to claim taxes on it. If so, what can I do to not bump up my income contingency? Should I not allow my company to pay the full amount to the guarantor?

Thanks in advance.


I called my guarantor explaining the situation that my net income will be different than my actual yearly income due to this being a "bonus" and they said instead of including W-2 as normal to include a paystub that shows my bi-weekly salary and that they will adjust according to that.

2 Answers 2


This is regular income to you (unless you meet some very narrow health-related field exceptions.) There's no "claiming of income" by you, it should be included on your W-2 as regular income where it will be subject to employment and income tax. Think of it like a bonus. It will bump up your income and make it look like you earn more money (because you did).

There's no special tax break for you or your employer for paying off your pre-existing student loans.

Talk to your student loan servicer to find out how the extra money will affect your income-based repayment plan next year. They should be able to tell you, or at least estimate for you, how it will change your future payments. Armed with that knowledge you can then decide whether or not to take the money from your employer. Naively, it would seem dumb to turn down free money, but there are some weird incentives out there.

  • Yes I am accepting the money and edited my question with the additional information I got when I called the guarantor. I also accepted your answer. Thanks!
    – Shawn
    Jul 24, 2014 at 23:38

If they directly paid for your education, it is possible that it wouldn't count as taxable income to you according to the IRS, depending on the amount:

If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. This means your employer should not include those benefits with your wages, tips, and other compensation shown in box 1 of your Form W-2. This also means that you do not have to include the benefits on your income tax return.

source: http://www.irs.gov/publications/p970/ch11.html

However, your situation is a bit trickier since they are sort of retroactively paying for your education. I'd think the answer is "Maybe" and you should consult a tax professional since it is a gray area.

On further research, I'm going to downgrade that "Maybe" to "Probably not, but hopefully soon." The reason I am doing so is that there is a bill in Congress specifically to allow what you are asking, which presumes that you currently can't do this.

The Bill is HR Bill 395 "The Student Loan Employment Benefits Act of 2013" sponsored by rep Steve Israel (D). It has co-sponsors from both parties, so that is promising for it's passage, I suppose. However, it appears to be still early in the legislative process. If this issue is near/dear to your heart maybe you should call your congressman.

Summary of the Bill: (from govtrack.us)

Student Loan Employment Benefits Act of 2013 - Amends the Internal Revenue Code to exclude from the gross income of an employee amounts paid by an employer under a student loan payment assistance program. Limits the amount of such exclusion to $5,000 in a taxable year.

Requires an employer student loan payment assistance program to be a separate written plan of an employer to provide employees with student loan payment assistance.

Defines "student loan payment assistance" as the payment of principal or interest on any indebtedness incurred by an employee solely to pay qualified higher education expenses which are paid or incurred within a reasonable time before or after such indebtedness was incurred and are attributable to education furnished during a period in which such employee was a student eligible for federal financial assistance.

  • This is a well written answer and I tend to agree that the new bill is exactly my situation.
    – Shawn
    Jul 24, 2014 at 23:50
  • Unfortunately it looks like this was stopped dead however.
    – Shawn
    Jul 24, 2014 at 23:56

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