The $5,250 educational assistance exclusion.

The 2026 limit and what it covers

Publication 15-B (2026) says 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. The exclusion applies to graduate-level courses as well as undergraduate. “Educational assistance” means amounts you pay or incur for your employees’ education expenses, which generally include the cost of books, equipment, fees, supplies and tuition.

The publication excludes several items from education expenses. The cost of a course or other education involving sports, games or hobbies does not count, unless it has a reasonable relationship to your business or is required as part of a degree program. Tools or supplies (other than textbooks) that the employee is allowed to keep at the end of the course do not count. Neither does the cost of lodging, meals or transportation. The employee must be able to substantiate to you that the assistance went to qualifying education expenses.

Student loan payments

Employer-provided educational assistance includes 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 the employee’s own education. The publication points to chapter 10 of Pub. 970 for the definition of qualified education loans. These payments count toward the same $5,250 ceiling, so an employee who also receives tuition help shares one annual limit across both.

What makes a qualifying program

The exclusion requires a separate written plan that provides educational assistance only to your employees. The program qualifies only if all four tests are met.

1. It benefits employees who qualify under rules you set up that do not favor highly compensated employees. Employees covered by a collective bargaining agreement can be left out of the test if there is evidence that educational assistance was a subject of good-faith bargaining.
2. It does not provide more than 5% of its benefits during the year for shareholders or owners (or their spouses or dependents). An owner for this test holds more than 5% of the stock or of the capital or profits interest on any day of the tax year.
3. It does not let employees choose cash or other includible benefits instead of educational assistance.
4. You give reasonable notice of the program to eligible employees.

The program can cover former employees if their employment is the reason for the coverage. For 2026 a highly compensated employee is one who was a 5% owner at any time during the year or the preceding year, or who received more than $160,000 in pay for the preceding year; you may ignore the pay test if the employee was not also in the top 20% by pay.

Who counts as an employee

For this exclusion the publication treats as employees: a current employee; a former employee who retired, left on disability or was laid off; a leased employee who has provided substantially full-time services for at least a year under your primary direction or control; yourself if you are a sole proprietor; and a partner who performs services for a partnership. A 2% S corporation shareholder follows the partner treatment for fringe benefits.

Assistance over $5,250

If you have no educational assistance plan, or you give an employee more than $5,250, you must include the value of those benefits as wages, unless they are working condition benefits. A working condition benefit is property or a service that would have been allowable to the employee as a business or depreciation expense if the employee had paid for it. Job-related courses can fit here: the publication says education qualifies as a working condition benefit if the same requirements for the employee’s own deduction would be met, for example education required by the employer or by law to keep the present salary, status or job, or education that maintains or improves skills needed in the job. It does not qualify if it is needed to meet the minimum educational requirements of the present trade or business or is part of a program of study that will qualify the employee for a new trade or business. Each course in a degree program is evaluated individually. See the working condition fringe page.

Owners as the only employees: the formula

The 5% owner limit creates a problem when the owners are the only employees. The publication gives a formula for an owner-employee: multiply the total educational assistance provided to employees other than the owner-employee by 5.263158% (0.05263158), round down to two decimal places, and do not exceed $5,250.

Its first example: a company has one owner-employee and 19 other employees, each receiving the full $5,250. The total for the others is $5,250 x 19 = $99,750, and $99,750 x 0.05263158 rounds down to $5,250.00, so the owner-employee may also receive $5,250. The total under the program is $105,000 and 5% of that is $5,250. Second example: if only eight of the other employees receive $5,250, the total is $42,000, and $42,000 x 0.05263158 rounds down to $2,210.52, which is the owner-employee’s maximum. If the owners are the only employees, the publication says they cannot receive assistance under section 127 because of the 5% limitation.

Reporting

Assistance within the $5,250 exclusion is not wages and is not reported on Form W-2. Table 2-1 shows the benefit as exempt up to $5,250 each year from income tax withholding, social security and Medicare, and FUTA. The excess is a taxable fringe benefit: include it in boxes 1, 3 and 5 of Form W-2 and withhold as for other wages. Employees who pay their own tuition have separate education benefits covered in Pub. 970, which the publication refers readers to; this page is limited to the employer side.

Pub 15-B fringe benefits at a glance

Other pages in this set

De Minimis Benefits, Achievement Awards, Dependent Care Assistance, Adoption Assistance, Meals on Business Premises, No-Additional-Cost Services, Cents-per-Mile Valuation Rule, Cafeteria Plan, Working Condition Fringe, Lodging on Business Premises.

Sources

• IRS Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits: section 2, Educational Assistance; Table 2-1; section 4 reporting. Page last reviewed April 30, 2026. Read November 2, 2026.

Every dollar figure on this page is a 2026 figure from the publication unless a different year is stated. The IRS can change a publication at any time, and the publication, your plan documents and a payroll professional control over this page. This page restates the publication and does not extend it to facts it does not address.