Educational Assistance: Employee Fringe Benefits (2026 IRS Guide)

This guide covers “Educational Assistance” within employee fringe benefits. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

This section discusses the exclusion rules that apply to fringe benefits. These rules exclude all or part of the value of certain benefits from the recipient’s pay.

In most cases, the excluded benefits aren’t subject to federal income tax withholding, social security tax, Medicare tax, federal unemployment tax under the Federal Unemployment Tax Act (FUTA), or Railroad Retirement Tax Act (RRTA) taxes and aren’t reported on Form W-2.

This section discusses the exclusion rules for the following fringe benefits.

• Accident and health benefits.

• Achievement awards.

• Adoption assistance.

• Athletic facilities.

• De minimis (minimal) benefits.

• Dependent care assistance.

• Educational assistance.

• Employee discounts.

• Employee stock options.

• Employer-provided cell phones.

• Group-term life insurance coverage.

• HSAs.

• Lodging on your business premises.

• Meals.

• No-additional-cost services.

• Retirement planning services.

• Transportation (commuting) benefits.

• Tuition reduction.

• Working condition benefits.

See Table 2-1 for an overview of the employment tax treatment of these benefits.

Educational Assistance

This exclusion applies to educational assistance you provide to employees under an educational assistance program. The exclusion also applies to graduate-level courses.

“Educational assistance” means amounts you pay or incur for your employees’ education expenses. These expenses generally include the cost of books, equipment, fees, supplies, and tuition. However, these expenses don’t include the cost of a course or other education involving sports, games, or hobbies, unless the education:

• Has a reasonable relationship to your business, or

• Is required as part of a degree program.

Education expenses don’t include the cost of tools or supplies (other than textbooks) your employee is allowed to keep at the end of the course. Nor do they include the cost of lodging, meals, or transportation. Your employee must be able to provide substantiation to you that the educational assistance provided was used for qualifying education expenses.

Exclusion for employer payments of student loans.

Employer-provided educational assistance benefits include payments made after March 27, 2020, whether paid to the employee or to a lender, of principal or interest on any qualified education loan incurred by the employee for education of the employee. Qualified education loans are defined in chapter 10 of Pub. 970.

Educational assistance program.

An educational assistance program is a separate written plan that provides educational assistance only to your employees. The program qualifies only if all of the following tests are met.

• The program benefits employees who qualify under rules set up by you that don’t favor highly compensated employees. To determine whether your program meets this test, don’t consider employees excluded from your program who are covered by a collective bargaining agreement if there is evidence that educational assistance was a subject of good-faith bargaining.

• The program doesn’t provide more than 5% of its benefits during the year for shareholders or owners (or their spouses or dependents). A shareholder or owner is someone who owns (on any day of the tax year) more than 5% of the stock or of the capital or profits interest of your business.

• The program doesn’t allow employees to choose to receive cash or other benefits that must be included in gross income instead of educational assistance.

• You give reasonable notice of the program to eligible employees.

Your program can cover former employees if their employment is the reason for the coverage.

For this exclusion, a highly compensated employee for 2026 is an employee who meets either of the following tests.

1. The employee was a 5% owner at any time during the year or the preceding year.

2. The employee received more than $160,000 in pay for the preceding year.

You can choose to ignore test (2) if the employee wasn’t also in the top 20% of employees when ranked by pay for the preceding year.

Employee.

For this exclusion, treat the following individuals as employees.

• A current employee.

• A former employee who retired, left on disability, or was laid off.

• A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control.

• Yourself (if you’re a sole proprietor).

• A partner who performs services for a partnership.

Exclusion from wages.

You can exclude up to $5,250 of educational assistance you provide to an employee under an educational assistance program from the employee’s wages each year.

Assistance over $5,250.

If you don’t have an educational assistance plan, or you provide an employee with assistance exceeding $5,250, you must include the value of these benefits as wages, unless the benefits are working condition benefits. Working condition benefits may be excluded from wages. Property or a service provided is a working condition benefit to the extent that if the employee paid for it, the amount paid would have been allowable as a business or depreciation expense. See Working Condition Benefits, later in this section.

Self-employed individuals, shareholders, and owners.

While there are no specific income limits for receiving educational assistance benefits, an educational assistance program must satisfy certain requirements under section 127 of the Internal Revenue Code and Regulations section 1.127-2, including not being discriminatory in favor of employees who are highly compensated employees. An individual who is self-employed within the meaning of section 401(c)(1) of the Internal Revenue Code may receive educational assistance. While shareholders and owners may receive educational assistance, not more than 5% 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 tax year) owns more than 5% of the stock or of the capital or profits interest in the employer.

If the owners are the only employees, they can’t receive educational assistance under section 127 of the Internal Revenue Code because of the 5% benefit limitation described above. The following formula can be used to determine the amount of educational assistance that an owner/employee can receive. Multiply the total amount of educational assistance provided to employees other than the owner/employee by 5.263158% (0.05263158). Then round down to two decimal places, but not greater than $5,250.

Example. A company has a single owner/employee and 19 other employees. If each employee (other than the owner/employee) claims the educational assistance and receives the full $5,250, the owner/employee may also receive $5,250. The total amount of educational assistance provided to employees (other than the owner/employee) is $5,250 x 19 = $99,750. $99,750 x 0.05263158 = $5,250.000105 (rounded down to two decimal places is $5,250.00). If the owner/employee receives $5,250 in educational assistance, then the 5% benefit limitation would be satisfied. The total amount of educational assistance provided under the program is $99,750 + $5,250 = $105,000, and 5% of $105,000 is $5,250.

However, if not every employee receives the full $5,250, the amount the owner/employee may exclude is reduced. If only eight of the employees (other than the owner/employee) receive $5,250, then the total amount of educational assistance provided to employees (other than the owner/employee) is 8 x $5,250 = $42,000. $42,000 x 0.05263158 = $2,210.52636 (rounded down to two decimal places is $2,210.52). If the owner/employee receives $2,210.52 in educational assistance, then the 5% benefit limitation would be satisfied. The total amount of educational assistance provided under the program is $42,000 + $2,210.52 = $44,210.52, and 5% of $44,210.52 is approximately $2,210.52.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

• Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits: Fringe Benefit Exclusion Rules — Educational Assistance — Internal Revenue Service; 2026 edition.

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.