Business Owners: Educational Assistance Programs Can Benefit Your Team
Do you have employees who are in college or fresh out of college? You may want to consider an Educational Assistance Program. Supporting their education doesn’t just help them, it can also provide your business with valuable tax advantages.
Educational debt remains one of the biggest burdens for today’s workforce, and offering support in this area can set your company apart. Whether you’re looking to attract new hires, retain top talent, or simply invest in your team’s growth, this benefit delivers value on both sides.
Currently, employers can use educational assistance programs to help employees with undergraduate or graduate-level student loan debt and other education expenses tax-free.
What Is an Educational Assistance Program?
An educational assistance program is a separate written plan of an employer for the exclusive benefit of its employees to provide employees with educational assistance. To qualify under Section 127 of the Internal Revenue Code, the plan must be in writing, and it must meet requirements that prevent discrimination in favor of highly compensated employees. The program needs to be fair and available across your workforce. Employers can also tailor their plan, whereby setting rules around eligibility, minimum grades, or continued employment after completing a course—but it must stay within IRS guidelines.
Payments can be made directly to the educational provider, lender or directly to the employee. By law, tax-free benefits under an educational assistance program are limited to $5,250 per employee per year, as adjusted for cost-of-living for tax years beginning after 2026. Generally, assistance provided above $5,250 is taxable as wages.
Eligible Expenses
Employers should note that not all costs qualify. Meals, lodging, transportation, and personal-use tools or equipment are excluded, as are courses involving sports, games, or hobbies unless tied to a degree or directly related to the business. Keeping the focus on legitimate educational expenses is key.
Educational assistance programs can help pay for:
- Books
- Equipment
- Supplies
- Tuition and other fees
- Qualified education loans
These programs can be used to pay principal and interest on an employee’s qualified education loans. The option is available only for payments made after March 27, 2020.
A qualified education loan (as defined in section 221(d)(1)) is a loan for education at an eligible educational institution. Eligible educational institutions include any college, university, vocational school, or other postsecondary educational institution as defined in sections 221(d)(2) and 25A(f)(2). The Department of Education determines whether an organization is an eligible education institution. A loan does not have to be issued or guaranteed under a Federal postsecondary education loan program to qualify as educational loan.
Special Rules for Owners and Highly Compensated Employees
The IRS has stipulations in place to ensure that educational assistance programs do not discriminate in favor of officers, shareholders, or highly compensated employees. Always discuss your plan with a professional advisor to ensure that your program meets all current requirements and truly benefits the broader employee base, rather than concentrating benefits at the top.
Education as an Investment
Educational assistance programs offer a clear path to supporting your employees while also strengthening your business. With tax advantages for the company and meaningful relief for your team, they create a benefit that works on both sides. Investing in education is an investment in your people—and your business.
