IRS updates guidance on educational assistance programs

The Internal Revenue Service posted an updated fact sheet on the tax rules surrounding educational assistance benefits after the passage last July of the One Big Beautiful Bill Act.

The new fact sheet, which comes in the form of answers to frequently asked questions, supersedes an earlier fact sheet from 2024 before passage of the OBBBA. The IRS noted that an employee's gross income does not include educational assistance benefits if the benefits are provided under an educational assistance program under Section 127 of the Internal Revenue Code and the amounts don't exceed $5,250. 

Under the OBBBA, the amount that may be excluded from gross income is adjusted for increases in the cost of living for taxable years after 2026. For calendar year 2025 and 2026, taxpayers won't have to pay any tax on the first $5,250 of those benefits and employers should not include those benefits in taxpayers' wages, tips and other compensation shown in box 1 of the Form W-2. 

The FAQs include revised information about educational assistance programs in general, including how the rules apply to certain qualified education loans. Along with updates related to the OBBBA amendments, they include a modified sample plan for employers. An employer can tailor its plan to include, for example, conditions for eligibility, when an employee's participation in the plan begins and prorated benefits for part-time employees. However, a program can't discriminate in favor of officers, shareholders, self-employed or highly compensated employees in requirements relating to eligibility for benefits.

There are also tax breaks for educators who have received educational assistance benefits.  A deduction of up to $300 ($600 if married filing jointly and both spouses are eligible educators, but not more than $300 each) is available for unreimbursed business expenses of eligible educators. The deduction, claimed on Form 1040, Schedule 1, Line 11, is available even if an educator doesn't itemize their deductions. To qualify, the educator must be a kindergarten through grade 12 teacher, instructor, counselor, principal or aide for at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.

Those who qualify can deduct costs like books, supplies, computer equipment and software, classroom equipment and supplementary materials used in the classroom. Expenses for participation in professional development courses are also deductible. Athletic supplies qualify if used for courses in health or physical education.

Starting in 2026, educator expenses can also be deducted as itemized deductions.