News & Updates

Though educational assistance programs have been available for many years, the option to use them to pay for workers’ student loans has only been available for payments made after March 27, 2020. Under current law, this student loan provision is set to expire Dec. 31, 2025.

Traditionally, educational assistance programs have been used to pay for books, equipment, supplies, fees, tuition and other education expenses for the employee. These programs can now also be used to pay principal and interest on an employee’s qualified education loans. Payments made directly to the lender, as well as those made to the employee, may qualify.

In most cases, educational benefits are excluded from federal income tax withholding, Social Security tax, Medicare tax and federal employment (FUTA) tax. By law, tax-free benefits under an educational assistance program are limited to $5,250 per employee per year. Normally, assistance provided above that level is taxable as wages.

Employers who don’t have an educational assistance program may want to consider setting one up. Fringe benefits, such as educational assistance programs, can help employers attract and retain qualified workers.

These programs must be in writing and cannot discriminate in favor of highly compensated employees. For information on other requirements, see Publication 15-B, Employer’s Tax Guide to Fringe Benefits.

‍

While most taxpayers get a refund after filing their taxes, many also find they unexpectedly owe taxes. This can be due to a life or job change for which they did not make the necessary tax adjustment during the year.

Those who should be especially careful are:

• Gig economy workers.
• Those with a “side hustle.”
• Anyone earning income not subject to withholding.

These individuals should check the amount they pay, or the amount of tax they have withheld throughout the year, to bring the tax they pay closer to what is owed. The IRS has a special Tax Withholding Estimator that can help taxpayers align their tax withholding or tax payments with what they owe.

The IRS reminds taxpayers that tax planning done now can save time and frustration later. Here are some important things to keep in mind:

How refunds work

The federal tax system is pay-as-you-go. Taxpayers pay tax as they earn wages or receive income during the year. For many, taxes are withheld from their paycheck by their employer and then given over to the IRS on their behalf. Others, such as gig economy workers, make or should make quarterly estimated tax payments throughout the year to stay current. A refund normally results when too much is withheld or paid throughout the year.

Recent IRS statistics show that two-thirds of taxpayers received a refund so far in 2024. As of mid-May, nearly $270 billion in refunds went to taxpayers with the average refund just under $2,900.

Avoid an unexpected bill

On the other hand, many taxpayers end up with estimated tax penalties because they underpay throughout the year. The penalty amount varies but for some it can be several hundred dollars. Adjusting withholding on paychecks or the amount of estimated tax payments can help prevent penalties. This is especially important for self-employed people, including those in the gig economy, those with more than one job and those with major changes in their life, like a recent marriage or a new child.

With that in mind, the IRS encourages taxpayers to use the IRS Tax Withholding Estimator this summer to help better align their tax withholding or tax payments with what they owe.

Tax Withholding Estimator

This handy tool on IRS.gov helps people figure the amount of federal income tax they should pay during the year. All that’s needed for taxpayers to use it are paystubs for all their jobs or other income information, such as from side jobs, self-employment or investment income, and a copy of their 2023 tax year return.

People can use the Tax Withholding Estimator to:

• Estimate their federal income tax withholding.
• See how a refund, take-home pay or tax due are affected by withholding amounts.
• Choose an estimated withholding amount that works for them and their family.

If a withholding change is needed upon completion, taxpayers should adjust their withholding by submitting a new Form W-4 to their employer or pension provider. They can also adjust quarterly estimated tax payments as appropriate.

IRS also reminds people to use the Tax Withholding Estimator if there’s a major life change such as a:

• New job or other paid work.
• Major income change.
• Marriage.
• Childbirth or adoption.
• New home purchase.

While the Tax Withholding Estimator works for most taxpayers, people with more complex tax situations should instead use the instructions in Publication 505, Tax Withholding and Estimated Tax. This includes taxpayers who owe Alternative Minimum Tax or certain other taxes, and people with long-term capital gains or qualified dividends.

‍

For individuals, the rate for overpayments and underpayments will be 8% per year, compounded daily.

Here’s a complete list of the new rates:

• 8% for overpayments (payments made in excess of the amount owed), 7% for corporations.
• 5.5% for the portion of a corporate overpayment exceeding $10,000.
• 8% for underpayments (taxes owed but not fully paid).
• 10% for large corporate underpayments.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus three percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus three percentage points and the overpayment rate is the federal short-term rate plus two percentage points. The rate for large corporate underpayments is the federal short-term rate plus five percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during July 2024.

See Revenue Ruling 2024-18 PDF for details, which announces the rates of interest, and will appear in Internal Revenue Bulletin 2024-37, dated Sept. 9, 2024.

‍

Who qualifies for educator expense deductions?

This deduction is available for teachers, instructors, counselors, principals and aides who work at least 900 hours a school year in a school providing elementary or secondary education. Educators filing jointly can claim up to $600 if both spouses are eligible, but no more than $300 per person. Educators can claim this deduction even if they take the standard deduction, and both public and private school educators qualify.

What's deductible?

Educators can claim deductions for out-of-pocket expenses on classroom items like books, supplies, equipment (including computers and software) and COVID-19 safety measures such as masks, disinfectants and air purifiers. They may also deduct costs for professional development courses relevant to their teaching, though it could be more advantageous to use other educational tax benefits like the lifetime learning credit (refer to Publication 970, Tax Benefits for Education, Chapter 3).

Expenses for homeschooling or nonathletic supplies for health or physical education are not eligible. The IRS recommends educators maintain detailed records, such as receipts and canceled checks, to substantiate their deductions.

Use e-file to claim educator expenses

For educators who have been granted a tax filing extension or qualify for a disaster extension, or for any other pertinent reason are still in the process of completing their 2023 tax return, the rules for claiming deductions remain consistent for the 2024 tax year. The filing extension deadline is Oct. 15, 2024. However, submitting a return before this date can aid in averting processing delays.

The IRS advises taxpayers to file electronically for a smoother process, whether they use tax software or a professional. Choose direct deposit for faster refunds. For more details, visit E-file options to file your return.

Individuals who owe taxes should consider using IRS Direct Pay or other electronic payment options available at IRS' Make a payment page for convenience.

‍

How it works

Taxpayers must have earned income to claim this credit. The credit is calculated based on income and a percentage of expenses incurred for the care of qualifying people to enable taxpayers to work, look for work or attend school.

• Depending on income, taxpayers can get a credit worth up to 35% of their qualifying childcare expenses. At minimum, it’s 20% of those expenses. For 2024, the maximum eligible expense for this credit is $3,000 for one qualifying person and $6,000 for two or more.

• Reimbursed expenses, such as from a state social services agency, must first be deducted as work-related expenses used to calculate the amount of the credit.

• The amount of work-related expenses used to figure the credit generally cannot be more than earned income for the year if single, or the smaller of a spouse’s income, if married.

• Taxpayers who claim it must list the name and address of the day camp on their return, along with the taxpayer identification number unless an exception applies.

IRS Publication 503, Child and Dependent Care Expenses, explains all the rules, the tests needed to claim the credit and describes an exception for certain taxpayers living apart from their spouse and meeting other requirements. Taxpayers can also use the Interactive Tax Assistant on IRS.gov to determine if they can claim this credit.

‍