Tax Savings Calculator: Salary Raise vs Student Loan Repayment Benefit
Compare what your employee actually keeps from a taxable salary raise versus a tax-free IRC Section 127 student loan repayment contribution. Same employer dollars, dramatically different employee value.
Your Inputs
$5,250 is the IRC Section 127 annual cap.
Salary Raise
Taxable wages
SLR Contribution
IRC Section 127, tax-free up to $5,250
Plus the employer saves $402 in FICA on every contribution.
Where the dollars go
- Take-home
- Lost to taxes
Why the gap exists
IRC Section 127 lets employers provide up to $5,250 per employee per year in qualified educational assistance (including direct payments toward employee student loans) that is excluded from gross income. The exclusion covers federal income tax, state income tax (in 41 of 50 states), Social Security tax, and Medicare tax. A salary raise gets hit by all four. An SLR contribution gets hit by none.
When does the gap matter most?
The value gap widens with the employee's marginal tax bracket. At a 32% federal bracket plus California's 9.3% top marginal rate plus 7.65% FICA, an employee loses roughly 49 cents on every raise dollar. That same dollar delivered through SLR reaches the employee's loan balance intact.
State tax notes
A small number of states currently treat Section 127 employer payments as state-taxable income (notably Pennsylvania and New Jersey in some circumstances). The calculator flags these states automatically. Always confirm with your tax advisor.
Frequently asked questions
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