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
Be a smarter, better informed investor.
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
-
The power and flexibility of 529 savings plansSPONSORED Today’s 529 plans can be used in more ways—and at more types of schools—making them one of the smartest ways to save for education.
-
Stocks Grind Up to New All-Time Highs: Stock Market TodayUnitedHealth stock led the Dow Jones Industrial Average amid increasing signs the labor market has not been well for months.
-
IRS in Turmoil: GOP Budget Cuts and Staff Shake-Ups Threaten Taxpayer ServicesIRS Republican lawmakers advance a controversial budget bill that would gut IRS funding further, risking your 2026 tax filing season.
-
Ask the Editor, September 5: Tax Questions on SALT DeductionAsk the Editor In this week's Ask the Editor Q&A, we answer questions from readers on the OBBB's changes to the SALT deduction.
-
Claiming the Standard Deduction? Here Are 10 Tax Breaks For Middle-Class Families in 2025Tax Breaks Working middle-income Americans won’t need to itemize to claim these tax deductions and credits — if you qualify.
-
Another State Rebels Against Trump’s New 2025 Tax Law: What Now?State Taxes Even if states adopt tax policies in the so-called ‘big beautiful bill,’ lawmakers may have workarounds at their fingertips.
-
Ask the Editor, August 29: Tax Questions on Estate and Gift TaxesAsk the Editor In this week's Ask the Editor Q&A, we answer questions from readers on estate and gift taxes.
-
Will You Get a ‘Surprise’ Tax Bill on Your Social Security Benefits in Retirement?Retirement Taxes Social Security benefit payments might land you in hot water when filing 2025 taxes — here are three reasons why.
-
Ask the Editor, August 22: Tax Questions on What Congress Will Do NextAsk the Editor In this week's Ask the Editor Q&A, we answer questions from readers on what Congress will do next with taxes.
-
Ask the Editor, August 15: Tax Questions on the OBBB, Tax RatesAsk the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on the OBBB and changes, if any, to tax rates.
