Issue Briefs

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Internal Revenue Code Section 127 was created by Congress in 1978 as a temporary, expiring tax benefit, intended to allow employers to provide tax-free assistance to their employees who were continuing to pursue their education while working. It was finally made permanent in 2012.

The annual amount of assistance, $5,250, which has not changed in more than 40 years, was based on the average cost of pursuing a four-year college degree at that time. In 2020, Congress added the option for employers to also provide this assistance to help employees pay off their student loans. In 2025, the student loan expansion was made permanent, and the annual benefit will be indexed for inflation starting in 2027.

Employers do not have to offer the benefit, but those who do must do so fairly and equally to all employees. Education expenses do not have to be job-related, and there are no requirements for employees to stay with a certain employer for any length of time. Employees can use the benefit for expenses related to educational attainment from certificates to advanced degrees.

There are efforts underway to further expand this long-standing tax benefit to allow employers to offer employees more than double the current annual tax-free benefit amount.  Such an expansion of Section 127 would help employees cover today’s education costs and repay significantly more student loan amounts. The Section 127 Coalition, which is co-chaired by NAICU and the Society for Human Resource Management (SHRM) and consists of nearly 65 trade associations, higher education institutions, and private employers, was formed over three decades ago to advocate for this important employee tax benefit to be made permanent.  Today, the coalition advocates for the benefit to be extended and expanded so more employers can offer it, and more employees can use it.