Under IRC §127, employers can cover up to $5,250 per employee each year for education expenses — completely tax-free to the employee and fully deductible for the business.
Here’s how it works:
1. You set up a written Qualified Educational Assistance Program (QEAP).
2. Employees receive reimbursements (or make direct payment to the school) for tuition, fees, books, and supplies.
3. The first $5,250 never shows up in W-2 wages, saving payroll taxes for both of you.
4. Your company deducts every qualified dollar as a business expense.
Why it matters
• Helps attract & retain high-caliber talent without raising salaries.
• Builds a more skilled workforce.
• Cheaper than a bonus as it saves on payroll taxes & isn’t guaranteed next year.
• Through 2025, student-loan repayments also qualify—perfect for millennials juggling debt.
Planning Tips
• Draft a simple written plan document, or swipe the IRS’s sample plan
• Make sure the plan isn’t just for the owner’s family — No more than 5% of all QEAP dollars can go to a >5% owner or their family.
• Track spend per employee to stay under the $5,250 cap and avoid payroll surprises.
Level up your team’s skills—and your tax efficiency—by putting a QEAP in place before year-end.
