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Employer-Provided Educational Assistance Benefits - IRC Sec. 127

Employer Provided Educational Assistance Benefits: Sec. 127 Employer-provided educational assistance allows employers to offer employees up to $5,250 annually in tax-free educational assistance.

What are Employer-Provided Educational Assistance Benefits?

Section 127 allows employers to offer their employees up to $5,250 annually in tax-free educational assistance for undergraduate or graduate-level courses.

Employers are not required to provide assistance under Section 127 to their employees. But if an employer chooses to do so, the benefit must be offered to all employees on a nondiscriminatory basis that does not favor highly compensated employees.

Employers that provide their employees with Section 127 benefits can deduct these costs as a business expense in determining their income tax liability. They must also have a written qualified educational assistance program that applies exclusively to their employees (including retired, disabled or laid off employees).

Employees cannot use the same educational expenses paid for or reimbursed through an employer-provided Section 127 program as the basis for claiming other federal tax benefits. However, employees may be able to claim other federal tax benefits, such as the American Opportunity Tax Credit (AOTC), for tuition and fees in excess of the $5,250 Section 127 limit.

Section 127 was permanently extended by the American Taxpayer Relief Tax Act of 2012, although the annual limit of $5,250 has not been increased in almost 40 years.

New Benefit - Student Loan Repayment Assistance

The Coronavirus Aid, Relief, and Economic Security (CARES) Act expanded Section 127 to cover up to $5,250 in employer payments for student loan repayment assistance through 2020. The Coronavirus Response and Relief Supplemental Appropriations (CRRSAA) Act extended the provision through the end of 2025.

Who Benefits?

In academic year 2011-2012, Section 127 enabled an estimated 850,000 U.S. workers (8 percent of all undergraduates and 20 percent of graduate students) to pursue higher education courses and degrees that develop and expand critical skills needed to compete in our growing global economy. In fact, the top three undergraduate majors among Section 127 recipients were health care (20 percent), business (19 percent), and STEM – sciences, technology, engineering, and mathematics (13 percent). Similarly, the top three graduate majors for Section 127 recipients were education (29 percent), business (22 percent), and health care fields (14 percent). Section 127 is thus an efficient, cost- effective vehicle for training and improving the U.S. workforce (NPSAS 2012).

Additional Information