The IRS has issued Fact Sheet 2026-10 containing updates to FAQs on Internal Revenue Code (IRC) section 127 educational assistance programs. The updates revise the background description; incorporate changes made by the One, Big, Beautiful Bill Act (OBBBA); and include a modified sample educational assistance plan.
Fact Sheet 2026-10 supersedes previously issued guidance from 2024 (Fact Sheet 2024-22). The updated FAQs provide general information and may not address a taxpayer’s specific facts and circumstances, and they are subject to change upon further review.
Updated educational assistance program guidance
The nine updated FAQs discuss section 127 educational assistance programs generally, qualified educational loans, student debt, non-discrimination requirements and exclusions from gross income for educational assistance other than under IRC section 127.
FAQ-1. What is an educational assistance program under IRC section 127?
An educational assistance program is an employer’s separate written plan providing educational assistance exclusively to employees — one that cannot discriminate in favor of certain individuals. The guidance provides an updated sample plan document for employers.
FAQ-2. What are educational assistance benefits?
Fact Sheet 2026-10 reiterates that there are two types of educational assistance benefits under IRC section 127:
- Payments for tuition, fees and similar expenses, books, supplies and equipment
- Principal or interest payments on “qualified education loans” (e.g., student loans) made by the employer after March 27, 2020 (the new FAQs also provide that additional information on qualified education loans can be found in IRS Publication 970)
FAQ-3. What is the total amount that can be excluded from gross income under IRC section 127 per year?
The total amount that can be excluded from gross income for payments of principal or interest on qualified education loans and other educational assistance combined is $5,250 per calendar year and, under OBBBA, adjusted for increases in the cost of living for taxable years beginning after 2026.
FAQ-4. What is a qualified education loan?
A qualified education loan — as defined in IRC section 221(d)(1) — is a loan for education at an eligible educational institution. Eligible educational institutions include any college, university, vocational school or other postsecondary educational institution as defined in section 221(d)(2). Fact Sheet 2026-10 clarifies that for purposes of IRC section 127, qualified education loans may be incurred by the employee prior to employment, and payments of principal and interest may be made by the employer in a subsequent year.
FAQ-5. How can payments of qualified education loans be made?
No substantive changes were made to this FAQ, which states that depending on how an employer designs its section 127 educational assistance program, an employer may provide payments of principal or interest on an employee’s qualified education loans for the employee’s own education directly to a third party, such as an educational provider or loan servicer, or make payments directly to the employee.
FAQ-6. Can student debt be reimbursed under a section 127 educational assistance program?
Fact Sheet 2026-10 reiterates that if student debt was incurred for qualified expenses under IRC section 127 (e.g., tuition, books, equipment and qualified education loans), the employer may reimburse the employee for these expenses, and the employee could then use those funds to help satisfy the debt. The reimbursed amounts are then excluded from the employee’s gross income, provided that the employee can substantiate the expenses to the employer.
FAQ-7. Can a section 127 educational assistance program benefit spouses or dependents of the employee?
Fact Sheet 2026-10 clarifies that an educational assistance program must be provided for the exclusive benefit of employees; if a program provides benefits to the spouse or dependents of an employee, it is not a section 127 educational assistance program unless those spouses or dependents are themselves employees.
FAQ-8. Can officers, shareholders, self-employed individuals, highly compensated employees and owners receive educational assistance under a section 127 educational assistance program?
No substantive changes were made to this FAQ. The FAQ states that while there are no specific income limits for receiving educational assistance benefits, an educational assistance program must satisfy certain requirements under IRC section 127 and its regulations, including not being discriminatory in favor of employees who are officers, shareholders, self-employed or highly compensated employees.
FAQ-9. Are there other exclusions from gross income for educational assistance?
No substantive changes were made to this FAQ. The FAQ discusses other potentially available exclusions from education for educational assistance, including as a working condition fringe benefit (see the Working Condition Benefits in section 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits) and as an educator expense deduction (see the IRS tax topic on educator expense deduction).
Going forward
Because FAQs are not published in the IRS Internal Revenue Bulletin, they are considered informal guidance and cannot be used by the IRS to resolve cases. Similarly, if an FAQ does not accurately reflect the law as it applies to a particular taxpayer’s case, the law will control the taxpayer’s tax liability. However, a taxpayer who reasonably and in good faith relies on IRS FAQs may avoid penalties.