Getting the right tax advice and tips is vital in the complex tax world we live in. The Kiplinger Tax Letter helps you stay right on the money with the latest news and forecasts, with insight from our highly experienced team (Get a free issue of The Kiplinger Tax Letter or subscribe). You can only get the full array of advice by subscribing to the Tax Letter, but we will regularly feature snippets from it online, and here is one of those samples…
It’s finally fall. Leaves are changing color. Children and some adults are awaiting trick-or-treat. And student loan payments have resumed putting a dent in a lot of people’s wallets after a three-year halt on repaying college debt ended. But these tax breaks can help ease the pain.
1. There’s a deduction for student loan interest
Taxpayers needn’t itemize on Schedule A of the Form 1040 to take this write-off.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
- Up to $2,500 of student loan interest paid each year can be claimed as a deduction on Schedule 1 of the Form 1040
- For 2023, the break begins to phase out for single filers with modified adjusted gross incomes above $75,000 and for joint filers with modified AGIs over $155,000. It ends for taxpayers with modified AGIs over $90,000 and $185,000, respectively
- Parents who help a child repay student loans generally can’t take the write-off unless they are also legally liable on the loans. But, even if a parent paid the loan and can't take the write-off, a child who meets the modified AGI limits can still take the interest deduction, provided he or she isn’t eligible to be claimed as a dependent on the parents’ return. The IRS treats this as if the parent gifted money to the child, who then paid the debt
2. Most student loan debt forgiven in 2021 through 2025 is tax-free for federal income tax purposes
This relief, enacted in the March 2021 stimulus law, is an exception to the general rule that cancellation of indebtedness is taxable. IRS has instructed lenders and loan servicers to not issue Form 1099-C to borrowers whose student loans are forgiven during this time period, and the discharged debt is excluded from income. Some states have different tax rules, which can be confusing.
3. Up to $10,000 from 529 accounts can be used to help pay off college debt of the account beneficiary without having to pay income tax on the withdrawals
It’s important to note that this $10,000 is a lifetime limit, not an annual limit. 529 distributions for student loan repayments that exceed $10,000 are taxable in part to the extent of the excess and are also subject to a 10% penalty.
4. Employers that offer qualified educational assistance programs can help
These programs can be used to pay down up to $5,250 of an employee’s college loans each year through 2025. The payments are excluded from workers’ wages for tax purposes.
5. Relief can be offered through workplace retirement plans, starting in 2024
A new law will allow employer 401(k) matches conditioned on student loan repayments made by employees.
The IRS blessed such a program in a 2018 private letter ruling. In that situation, the firm contributed to its 401(k) plan on behalf of employees paying down their college debt. The employer matches took place regardless of whether employees also paid in. Participation was voluntary, and employees had to elect to enroll in the program. Employers have been lobbying Congress for years to enact a statute to allow them to do this without seeking a private ruling from the IRS, and lawmakers obliged them last year in the SECURE 2.0 law.
This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.
Related stories
- A Little-Known Tax-Free Way To Help Pay Your Student Loan
- How to Prepare to Start Paying Student Loans Again
- What Happens When Student Loan Payments Resume?
- What a Government Shutdown Means for Student Loan Payments
-
3 Ways to Stretch the 2026 Social Security COLA For Your BudgetThree steps retirees can take to stretch the Social Security COLA to fit their budgets.
-
How to Keep Your Charitable Giving Momentum Going All YearInstead of treating charity like a year-end rush for tax breaks, consider using smart tools like DAFs and recurring grants for maximum impact all the year.
-
Uber Takes Aim at the Bottom Lines of Billboard LawyersUber has filed lawsuits and proposed a ballot initiative, in California, to curb settlements it claims are falsely inflated by some personal injury lawyers.
-
New 2026 Tax Change Could Mean More for Your IRA and 401(k) SavingsRetirement Savings Here's how the new IRS inflation adjustments will increase the contribution limits for your 401(k) and IRA in the new year.
-
3 Ways High-Income Earners Can Maximize Their Charitable Donations in 2025Tax Deductions New charitable giving tax rules will soon lower your deduction for donations to charity — here’s what you should do now.
-
10 Retirement Tax Plan Moves to Make Before December 31Retirement Taxes Proactively reviewing your health coverage, RMDs and IRAs can lower retirement taxes in 2025 and 2026. Here’s how.
-
When to Hire a Tax Pro: The Age Most Americans Switch to a CPATax Tips Taxpayers may outsource their financial stress by a specific age. Find out when you should hire a tax preparer.
-
Three Critical Tax Changes Could Boost Your Paycheck in 2026Tax Tips The IRS predicts these tax breaks may change take-home pay in 2026. Will you get over $1,000 in tax savings?
-
RMDs, Roth, and SS: Test Your Knowledge of Retirement Tax RulesQuiz Don't let the IRS catch you off guard. Take our quiz to reveal common retirement tax rules that could save (or cost) you thousands.
-
Banks Are Sounding the Alarm About StablecoinsThe Kiplinger Letter The banking industry says stablecoins could have a negative impact on lending.
-
IRS Reveals New 2026 Child Tax Credit and other Family Credit AmountsTax Credits Key family tax breaks are higher for 2026, including the Earned Income Tax Credit and the Adoption Credit. Here's what they're worth.
