Employer Student Loan Repayment Tax Calculator 2026 — §127 Tax Savings
Calculate Section 127 student loan repayment tax savings for employees and employers. Shows FICA savings, accelerated payoff, and comparison to a salary increase.
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2026 tax-free cap: $5,250 (OBBBA — permanent & inflation-indexed) $
Reduces available tax-free loan benefit cap %
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Used to calculate FICA (SS wage base $184,500) How many years you expect to receive the benefit
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%
$0
Annual Tax Savings (Employee)
$0
Employer FICA Savings/Year
$0
Total Lifetime Savings
$0
Interest Saved (Faster Payoff)
§127 Tax Savings Breakdown
How the Section 127 Student Loan Calculator Works
Enter the annual employer payment (up to the $5,250 cap), your tax rates, salary, and loan details. The calculator shows how much tax you save by receiving the benefit tax-free versus getting it as taxable wages. It also shows the accelerated loan payoff from the extra principal payments.
The §127 Formula
Tax-Free Amount = min(Annual Payment, $5,250 − Tuition Assistance)
Taxable Overage = max(0, Annual Payment − $5,250)
Employee Tax Savings = Tax-Free Amount × (Federal Rate + State Rate + FICA Rate)
FICA Rate = 7.65% if salary < $184,500 SS wage base; 1.45% above
Employer FICA Savings = Tax-Free Amount × 7.65% (or 1.45% above wage base)
Interest Saved = difference in total interest with benefit vs without
Taxable Overage = max(0, Annual Payment − $5,250)
Employee Tax Savings = Tax-Free Amount × (Federal Rate + State Rate + FICA Rate)
FICA Rate = 7.65% if salary < $184,500 SS wage base; 1.45% above
Employer FICA Savings = Tax-Free Amount × 7.65% (or 1.45% above wage base)
Interest Saved = difference in total interest with benefit vs without
Example
Employee with $85K salary, $5,250 annual benefit, 22% federal + 5% state, $35K loan at 6.5%:
Tax-free benefit: $5,250
Federal + state + FICA savings: $5,250 × (22% + 5% + 7.65%) = $5,250 × 34.65% = $1,819
Employer also saves: $5,250 × 7.65% = $402/year
Over 5 years: $1,819 × 5 = $9,094 employee savings + faster payoff interest savings
Tax-free benefit: $5,250
Federal + state + FICA savings: $5,250 × (22% + 5% + 7.65%) = $5,250 × 34.65% = $1,819
Employer also saves: $5,250 × 7.65% = $402/year
Over 5 years: $1,819 × 5 = $9,094 employee savings + faster payoff interest savings
Extended
Benefit vs Salary Increase Comparison
Compare the net value of the tax-free loan repayment benefit against an equivalent salary increase
Compare the net take-home value of the §127 tax-free benefit versus an equivalent gross salary increase. The benefit almost always delivers more value due to FICA and income tax avoidance.
Benefit vs Salary Increase — Net Value Comparison
| Payment Amount | §127 Tax-Free Net Value | Salary Increase Net (after tax) | Advantage of §127 | Employer Cost Difference |
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Frequently Asked Questions
How does the employer student loan repayment benefit work under Section 127?
Under Section 127, employers can pay up to $5,250 per year toward an employee's student loan principal or interest — and the payment is tax-free to the employee. The employee pays no federal income tax and no FICA (Social Security or Medicare) tax on the benefit. The employer also avoids its share of FICA taxes on the payment, making it cheaper to provide than an equivalent salary increase.
Did the OBBBA make the student loan repayment benefit permanent?
Yes. The One Big Beautiful Budget Act (OBBBA) permanently extended the Section 127 student loan repayment exclusion, which had previously been set to expire. The OBBBA also added annual inflation indexing to the $5,250 cap, so the limit will increase over time to keep pace with inflation. This makes the benefit a reliable long-term planning tool for both employers and employees.
Does the $5,250 cap apply to both tuition assistance and student loan repayment?
Yes. The $5,250 annual limit under Section 127 is a shared cap that covers both employer-provided tuition assistance (for current education) and employer student loan repayment assistance. If your employer pays $3,000 toward your tuition during the year, only $2,250 of loan repayment assistance would be tax-free. Combined payments exceeding $5,250 become taxable wages.
What are the FICA tax savings for employers and employees?
Each dollar of tax-free benefit saves the employee 7.65% in FICA taxes (6.2% Social Security + 1.45% Medicare, assuming income below the $184,500 SS wage base). The employer saves an equal 7.65% on their matching FICA obligation. For the maximum $5,250 benefit, the employee saves up to $401 in FICA taxes and the employer saves another $401 — a combined FICA savings of up to $802 per year.
How does the employer student loan benefit compare to a salary increase?
A $5,250 salary increase is subject to both income tax and FICA tax. At a 22% marginal rate, the employee nets only about $3,708 after taxes. The employer also owes an additional $401 in FICA taxes on the salary. By contrast, $5,250 in tax-free student loan repayment assistance delivers the full $5,250 in value to the employee at a lower total cost to the employer — making it a more tax-efficient form of compensation.