Tax Day this year is Monday, April 18th, less than a week away. There are 40 million Americans that owe student debt and there is one small benefit that student loan borrowers (with incomes below $80,000) can take to save a little money. Unfortunately for borrowers that make more than $80,000 there is no benefit here.
According to the IRS, if your modified adjusted gross income (MAGI) is less than $80,000 ($160,000 if filing a joint return) there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. This deduction can reduce the amount of your income subject to tax by up to $2,500.
While this benefit is helpful, it is limited in the fact that borrowers can only deduct up to $2500 per year and the benefit is phased out above $80,000. $2,500 is an extremely valuable tax deduction for many people, but we need to do more in America to help the 40 million Americans that are struggling every day with high debt loads.
One way to do more is to encourage Congress to pass H.R. 3861, legislation introduced by Congressman Rodney Davis (R-IL) and Gwen Graham (D-FL) to provide a $5,250 annual tax exclusion for employees that receive student loan assistance from their employers.
This tax exclusion would be a huge win for many borrowers because it would encourage pre-tax money to be spent on student loans. Currently, borrowers are required to spend after-tax dollars on their student loan repayments. If we can encourage companies to offer pre-tax money to help their employees, we will really help to solve our nation's student loan crisis.
Contact GradFin today (Bwalters@GradFin.com) to learn more about student loan debt repayment plans at your company. We will send a GradFin representative to discuss this new benefit plan with your benefits team and hold a Town Hall at your office to sign employees up and educate them on accelerating their student loan repayment process.
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