IRC SECTION 127: EDUCATIONAL ASSISTANCE PROGRAMS

Recoup your Upskilling Investments

Easily enhance your education assistance program, boost skills and retain talent—all the while saving money, thanks to Uncle Sam.  

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Investing in Your Employees Won’t Cost as Much as You Think 

IRC Section 127 allows U.S. businesses to deduct as an expense your investment in education benefits up to $5,250 per employee, reducing your business’ taxable income.

This also means that the amount of that benefit (up to $5,250) will not be included in the employee’s taxable income—meaning your employee’s tax burden won’t increase.

How much will you recoup?

The investment that your organization will recoup will depend on your company’s effective tax rate. Check with your tax professional on how this specifically will impact your business’s situation.

Want to Leverage the Tax Savings?

Here’s everything you need to know to recoup your investment in employee development.

Step 1: Plan your education assistance program 

  • To qualify, you must have documentation explaining your policies and eligibility requirements
  • Offer it to all employees (no playing favorites)*
  • Decide what to cover (you can include tuition, fees, books, supplies and equipment)**
  • Set the benefit limit to $5,250 per employee, per year

* The program must not provide more than 5% of its benefits to shareholders or owners who own more than 5% of the company
** Bonus for 2025 only: You can cover student loan repayment with your program.

Step 2: Stay in the IRS’s good books 

  • You’ll need detailed records on the investments made into each employee – we can do this for you
  • Consult tax pros to maximize benefits and ensure compliance

Step 3: Make it happen and spread the word 

  • Partner with us to make learning and tracking your education assistance a breeze
  • Spread the news about your program to current and prospective employees

Use SkillsWave to Meet IRC 127 Eligibility

SkillsWave makes it easy to manage, track and maximize your tax savings—all while helping your employees grow. Learn how.

IRC Sec. 127 Eligibility Checklist

The big question: does your program qualify for tax breaks through IRC Sec. 127? And if not, what do you need to change so it does? Below, you’ll find a quick checklist of requirements that you can use to determine if your program qualifies. 

Note that this checklist is meant as a starting point and may not be comprehensive. We recommend that you consult a tax expert to confirm your program’s eligibility.

Checklist:

  • Your organization has a formal Educational Assistance Plan (EAP)
  • The program is available in writing and available to all eligible employees
  • The program is equitable and not offered favorably to highly compensated employees
  • The program doesn’t provide more than 5% of its benefits to shareholders or owners who own more than 5% of the company
  • The program is not offered to employees as a choice between educational assistance and other remuneration options
  • The program has clearly defined eligibility criteria
  • The program is available to employees without any obligation to stay with the company after receiving the benefit
  • You maintain detailed records of your investment in each employee so you’re prepared should the IRS request them
  • You’ve consulted with your Finance team or a tax expert about applying for the tax break

For more information, the IRS provides an example plan that meets all eligibility requirements on its website. 

See how SkillsWave can help you meet all eligibility requirements. 

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Ready to transform your workforce and bottom line?

Let’s chat about how our upskilling solution can seamlessly and easily help you leverage the Section 127 tax break.

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