IRS Compliant Staff Blessing: A New Way Forward

By Raul Rivera

If you pastor a church or lead a ministry, you probably know this tension well: You want to bless your team, but your budget has limits. You want to care for your staff like family, but IRS rules make it complicated. For many churches, especially younger congregations or church plants, the weight of student loan debt is a daily struggle for pastors, worship leaders, and staff members trying to make ends meet.

But now there’s some good news—and it’s buried in a recent piece of legislation that’s been colloquially called the “One Big Beautiful Bill Act.” (No, that’s not its legal name, but that’s how many are referring to it.)

Here’s what it means for your church.

A Tax-Free Way to Help With Student Loans

Under this new law, ministries like yours can now help employees pay off their student loans without taxing that financial help like regular income.

Normally, if your church gave someone $2,000 to help pay down their loans, the IRS would see it as extra income, and your staff member would be on the hook for the taxes. That $2,000 could end up being worth a lot less in their pocket.

But not anymore.

Now, thanks to this law, the money your church gives toward a staff member’s student loan payments can be completely tax-free. And that’s a win for everyone:

• Your staff member gets to use the full benefit without worrying about surprise taxes in April.
• Your church gets to support your team in a meaningful way, possibly even helping them stay longer or feel more valued.
• The IRS (for once) is giving churches a break.

When Does It Start?

This provision is already in effect, but there’s more good news on the way.

Starting in 2026, the amount a church or ministry can give will adjust with inflation. That means over time, as the cost of living goes up, the annual limit your church can contribute will rise too. So the benefit doesn’t shrink as the economy changes.

Right now, the maximum is $5,250 per year, per employee. But that number can increase as the years go by, keeping this benefit strong and relevant.

What Churches Should Do Now

Here are a few ways you can prepare your church or ministry to use this benefit well:

1. Talk to your leadership team or board. Many churches want to do more for their staff, but don’t realize this option exists.
2. Review your payroll process. You’ll need to structure these payments the right way so they qualify for the tax exemption through your compensation agreement (we can help with that).
3. Start with what you can. Even $50 or $100 per month toward a staff member’s loans can show real care, and now, it goes further than before.

Can a Church Rework a Staff Member’s Salary to Include This Benefit?

Yes, with the right structure.

Let’s say you have a staff member—let’s call him Pastor X—who currently earns $50,000 a year. Pastor X also has a student loan payment of $400/month, which adds up to $4,800 per year, a heavy burden on a pastor’s salary.

After learning about this tax-free loan repayment benefit, Church XYZ wants to help. But they don’t necessarily have the budget to increase his total compensation.

So what can they do?

Here’s what you can’t do:
You can’t simply take $4,800 from Pastor X’s salary and re-label it as a student loan benefit. The IRS does not allow this benefit to be part of a salary reduction agreement. That would make it taxable again and disqualify the benefit.

Here’s what you can do—and it’s perfectly fine when done correctly:

1. Terminate the existing employment agreement (which currently pays Pastor X $50,000/year).
2. Adopt a new written salary agreement that includes:
• $45,200 in regular taxable wages
• $4,800 in tax-free student loan repayment benefits under the church’s new qualified educational assistance program
3. Create a formal, written plan that documents the new educational assistance program and outlines who is eligible.

Because the new agreement offers the loan repayment benefit as part of a completely restructured compensation package—not as an either/or option- it is not considered a salary reduction under the IRS code. That distinction is important.

The key is that the change must be prospective, not retroactive, and not framed as a “swap” for salary. It needs to be a genuine change in how the employee is compensated going forward.

A Few More Notes for Church Leaders

• This benefit must be provided under a written educational assistance program, and the plan needs to follow IRS rules, especially around nondiscrimination.
• You don’t have to offer this benefit to every employee, but the eligibility criteria must be reasonable and clearly documented (e.g., all full-time staff or ordained ministers).
• You can start small and grow the benefit over time. The $5,250 annual limit is just that—a ceiling. You can offer less and still make a real difference.

Why This Matters for the Church

In a world where student debt can feel like a ball and chain around the ankles of young leaders, this is a chance for the Church to lead with generosity, wisdom, and compassion.

Imagine what it could mean for a young children’s pastor who’s faithfully serving but can barely afford rent. Or for a part-time worship leader juggling ministry and a second job just to make their loan payments.

Your church has the power to not only bless those team members but to do it in a way that’s smart, sustainable, and IRS-approved.

We're Here to Help

If you want to explore how your church can start using this benefit effectively, our team is ready to walk you through it. We help churches and ministries implement changes like this through our Compensation Agreement Clerical Service, making sure everything aligns with IRS requirements. We’ve been helping churches navigate tax rules for 25 years, and this is one of the most encouraging updates we’ve seen in a while. Call us at 770-638-3444.

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