As an employer, offering educational assistance to your employees is not only a great way to support their professional development but also an opportunity to provide tax-advantaged benefits that benefit both your employees and your business.
Under IRS guidelines, employers can offer an Educational Assistance Program (EAP), which allows employees to receive up to $5,250 per year in educational assistance benefits—tax-free. This benefit can be used to cover a wide range of educational expenses, including tuition, fees, books, and supplies, as long as the program is set up in accordance with IRS regulations.
Key Benefits of the Educational Assistance Program:
- Tax-Free Benefit to Employees: Employees who receive educational assistance through an EAP are not required to pay federal income tax on amounts up to $5,250 annually. This can make higher education or professional development more affordable and reduce employees’ tax liabilities.
- Employer Deductions: Employers can deduct the cost of educational assistance provided to employees as a business expense, making it an attractive option to promote employee growth while lowering tax obligations.
- Eligible Expenses: The program can cover a variety of educational costs, including: Tuition, Fees, Books and supplies, and Certain other costs related to education (depending on the program’s structure).
- Increased Employee Satisfaction & Retention: Offering educational assistance can be a valuable tool for employee retention and engagement. Employees who feel supported in their career development are more likely to stay with your company, improving overall morale and reducing turnover.
- Compliance Requirements: To qualify for the tax-free benefit, the educational assistance must be provided under a written plan that meets IRS requirements. The program should not favor highly compensated employees, and it must be offered on a nondiscriminatory basis to all employees or specific classes of employees.
How to Implement an Educational Assistance Program:
- Create a Written Plan: Draft a clear, formal plan that outlines the program’s structure, eligibility criteria, and the types of expenses covered.
- Communicate with Employees: Make sure employees are aware of the benefit and how they can apply for assistance.
- Maintain Records: Keep accurate records of all educational assistance provided, as this will be necessary for tax reporting.
By offering an Educational Assistance Program, your business not only enhances employee development but also takes advantage of significant tax benefits. It’s an investment in both your team and the long-term success of your business.
The IRS recently announced, in a news release on August 6th, 2025, that employers may continue to use these educational assistance programs through December 31st, 2025.
If you would like to more details, visit the IRS official website to learn more about how the Educational Assistance Program works and how to be compliant with IRS Regulations for this exclusion.