The past 12-months have brought a number of legal updates to educational assistance plans (EAP) under section 127 of the Internal Revenue Code. In April 2026, the IRS updated its Frequently Asked Questions webpage about EAPs. Employers that provide educational assistance benefits to help employees pay for tuition, fees, books, supplies, equipment, and qualified student loans may exclude the payments, up to the annual limit, from employees’ gross income if the benefit complies with section 127. The IRS’s FAQs describe and clarify the benefit. Here are the highlights from the IRS’s FAQs:
- Updated Sample EAP Plan: To qualify as a valid EAP, the plan must be written and must meet certain other requirements. The IRS released an updated sample plan to assist employers with establishing EAPs that comply with section 127. (See IRS Publication 5993 for the sample EAP plan.)
- Educational Assistance Plan (section 127 Plan) Cap Increase: Starting in 2026, the $5,250 annual cap for section 127 educational assistance benefits will be adjusted for increases in the cost of living. The IRS will announce what the new amount will be. Unused amounts cannot be carried forward to subsequent years.
- Repayments to Qualified Education Loans: Employer-provided student loan repayments are now a permanent benefit available through a section 127 educational assistance plan. The benefit includes principal or interest payments on certain qualified education loans incurred by the employees paid directly to a third party (such as an educational provider or a loan service) or directly reimbursed to the employee. Generally, EAP benefits for qualified education loans are only available if the employer amends the terms of its EAP plan to include the benefit.
- No Educational Assistance Benefits for Spouses or Dependents: EAP benefits only apply to employees. An employer cannot provide EAP benefits for the spouse or dependent of an employee.
For more information, please see the IRS’s EAP FAQ’s webpage: https://www.irs.gov/newsroom/updates-to-frequently-asked-questions-about-educational-assistance-programs.
