26 U.S.C. § 127
§ 127. Educational assistance programs
No plain-English explainer yet. Below is the official text. Explainers are being added section by section.
History
Changed by the 2025 tax lawAdded in 1978 by the Revenue Act of 1978. Last changed July 4, 2025 by the One Big Beautiful Bill Act (2025).
Every change, newest first (16)
- July 4, 2025One Big Beautiful Bill Act (2025)
- December 27, 2020Consolidated Appropriations Act, 2021
- March 27, 2020CARES Act (2020)
- June 7, 2001Economic Growth and Tax Relief Reconciliation Act of 2001
- December 17, 1999Public Law 106-170
- August 5, 1997Taxpayer Relief Act of 1997
- August 20, 1996Small Business Job Protection Act of 1996
- August 10, 1993Omnibus Budget Reconciliation Act of 1993
- December 11, 1991Public Law 102-227
- November 5, 1990Omnibus Budget Reconciliation Act of 1990
- December 19, 1989Omnibus Budget Reconciliation Act of 1989
- November 8, 1989Public Law 101-140
- November 10, 1988Technical and Miscellaneous Revenue Act of 1988
- October 22, 1986Tax Reform Act of 1986
- October 31, 1984Public Law 98-611
- November 6, 1978Revenue Act of 1978 · added this section
The law as written
Current through Public Law 119-102. Amendment notes omitted.
Structure
Gross income of an employee does not include amounts paid or expenses incurred by the employer for educational assistance to the employee if the assistance is furnished pursuant to a program which is described in subsection (b).
If, but for this paragraph, this section would exclude from gross income more than $5,250 of educational assistance furnished to an individual during a calendar year, this section shall apply only to the first $5,250 of such assistance so furnished.
For purposes of this section an educational assistance program is a separate written plan of an employer for the exclusive benefit of his employees to provide such employees with educational assistance. The program must meet the requirements of paragraphs (2) through (6) of this subsection.
The program shall benefit employees who qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of employees who are highly compensated employees (within the meaning of section 414(q)) or their dependents. For purposes of this paragraph, there shall be excluded from consideration employees not included in the program who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, if there is evidence that educational assistance benefits were the subject of good faith bargaining between such employee representatives and such employer or employers.
Not more than 5 percent of the amounts paid or incurred by the employer for educational assistance during the year may be provided for the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the year) owns more than 5 percent of the stock or of the capital or profits interest in the employer.
A program must not provide eligible employees with a choice between educational assistance and other remuneration includible in gross income. For purposes of this section, the business practices of the employer (as well as the written program) will be taken into account.
A program referred to in paragraph (1) is not required to be funded.
Reasonable notification of the availability and terms of the program must be provided to eligible employees.
For purposes of this section—
The term “educational assistance” means—
the payment, by an employer, of expenses incurred by or on behalf of an employee for education of the employee (including, but not limited to, tuition, fees, and similar payments, books, supplies, and equipment),
the payment by an employer, whether paid to the employee or to a lender, of principal or interest on any qualified education loan (as defined in section 221(d)(1)) incurred by the employee for education of the employee, and
the provision, by an employer, of courses of instruction for such employee (including books, supplies, and equipment),
but does not include payment for, or the provision of, tools or supplies which may be retained by the employee after completion of a course of instruction, or meals, lodging, or transportation. The term “educational assistance” also does not include any payment for, or the provision of any benefits with respect to, any course or other education involving sports, games, or hobbies.
The term “employee” includes, for any year, an individual who is an employee within the meaning of section 401(c)(1) (relating to self-employed individuals).
An individual who owns the entire interest in an unincorporated trade or business shall be treated as his own employer. A partnership shall be treated as the employer of each partner who is an employee within the meaning of paragraph (2).
Ownership of stock in a corporation shall be determined in accordance with the rules provided under subsections (d) and (e) of section 1563 (without regard to section 1563(e)(3)(C)).
The interest of an employee in a trade or business which is not incorporated shall be determined in accordance with regulations prescribed by the Secretary, which shall be based on principles similar to the principles which apply in the case of subparagraph (A).
An educational assistance program shall not be held or considered to fail to meet any requirements of subsection (b) merely because—
of utilization rates for the different types of educational assistance made available under the program; or
successful completion, or attaining a particular course grade, is required for or considered in determining reimbursement under the program.
This section shall not be construed to affect the deduction or inclusion in income of amounts (not within the exclusion under this section) which are paid or incurred, or received as reimbursement, for educational expenses under section 117, 162 or 212.
No deduction or credit shall be allowed to the employee under any other section of this chapter for any amount excluded from income by reason of this section.
In the case of any taxable year beginning after 2026, both of the $5,250 amounts in subsection (a)(2) shall each be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2025” for “calendar year 2016” in subparagraph (A)(ii) thereof.
If any increase under paragraph (1) is not a multiple of $50, such increase shall be rounded to the nearest multiple of $50.
For reporting and recordkeeping requirements, see section 6039D.