IRS Updates FAQs on Educational Assistance Programs and Releases New Sample Plan Document

The Internal Revenue Service has released updated frequently asked questions addressing educational assistance programs under Section 127 of the Internal Revenue Code, along with a revised sample plan document, Publication 5993 (Rev. 4-2026). The updated guidance represents changes made by the One Big Beautiful Bill of 2025, providing clarification for employers that offer—or are considering offering—tuition assistance or student loan repayment benefits.

Chance to Revamp: The updated guidance, reformed by the One Big Beautiful Bill, gives employers a timely opportunity to modernize Section 127 programs, including by revising plan documents, expanding or formalizing student loan repayment features, and reassessing compliance with notice and nondiscrimination requirements.

Section 127 permits employers to provide certain educational benefits to employees on a tax-free basis through a written educational assistance program. Employees may currently exclude up to $5,250 per year from gross income for qualifying educational assistance, including both tuition assistance and eligible student loan repayment benefits.

KEY UPDATES IN THE REVISED FAQS

The revised frequently asked questions (FAQs) supersede prior guidance issued in 2024 and include notable updates.

• Inflation Adjustment to Annual Exclusion Amount: The $5,250 annual exclusion will be indexed for inflation for taxable years beginning after 2026, representing a departure from the longstanding fixed limit. The Internal Revenue Service (IRS) reiterates that unused amounts cannot be carried forward.
• Student Loan Repayment Benefits Made Permanent: Employer-provided student loan repayment assistance is now a permanent feature of Section 127 programs. Since March 27, 2020, employers have been permitted to provide tax-free payments of principal or interest on qualifying education loans, but prior guidance referenced a scheduled sunset date of January 1, 2026.

The revised FAQs remove references to the expiration date and clarify that employers may make qualifying payments directly to employees, lenders, or educational providers, depending on the terms of the plan.

CLARIFICATIONS ON PROGRAM DESIGN

The revised FAQs include operational clarifications relevant to employers administering Section 127 programs, including:

• Employers must inform employees about the existence and terms of any educational assistance program.
• Educational assistance programs must be maintained for the exclusive benefit of employees and generally may not be provided to spouses or dependents unless those individuals are also employees.
• Programs must comply with Section 127 nondiscrimination requirements and may not favor officers, shareholders, self-employed individuals, or highly compensated employees.
• Qualifying expenses include tuition, fees, books, supplies, equipment, and eligible student loan repayments but exclude items such as meals, lodging, transportation, and certain tools or equipment that employees may retain after coursework completion.

UPDATED SAMPLE PLAN DOCUMENT

The IRS has issued an updated sample educational assistance programs document via Publication 5993, which employers may use as a starting point for drafting or revising Section 127 plans. The sample reflects recent statutory changes, including those related to student loan repayment benefits, and incorporates updated administrative provisions. Employers should tailor the document to their specific eligibility rules, benefit design, and operational practices.

More Than a Sample: Beyond serving as a drafting aid, the sample provides insight into the structure and content of a compliant Section 127 program. The document offers an integrated approach to educational assistance benefits, including student loan repayment, and includes detailed provisions addressing eligibility, benefit design, substantiation requirements, and program administration.

For employers that have not recently updated their programs—or that have implemented student loan repayment benefits on an interim basis—the sample document may highlight gaps in existing plan terms or administrative practices. Therefore, employers should consider using the sample document as a practical tool to evaluate whether their existing plan documents and administrative practices align with current IRS guidance and to identify potential gaps in program design or operation.

CONSIDERATIONS FOR EMPLOYERS

Employers may wish to review their educational assistance programs to ensure alignment with current law and IRS positions. Key action items may include:

• Updating plan documents to reflect permanent student loan repayment benefits.
• Revising references to the annual exclusion amount and future inflation adjustments.
• Reviewing employee communications and program disclosures.
• Confirming compliance with Section 127 nondiscrimination requirements.

Embracing and implementing these changes in guidance presents an opportunity for employers to reevaluate educational assistance offerings as part of broader recruitment and retention strategies.