8887 / How are funds provided to employees through an educational assistance program taxed?

An employee may generally exclude from income amounts received pursuant to an employer-sponsored Educational Assistance Program (EAP) that was established in order to fund employee education-related expenses, subject to the maximum limitation discussed below.¹ This exclusion was made permanent by EGTRRA 2001 following a number of extensions in preceding years. Amounts received under an EAP may be excluded whether or not the educational expenses are job related.² An employee cannot exclude from income more than $5,250 in educational assistance benefits in any calendar year.³

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1. IRC § 127(a)(1).

2. Treas. Reg. § 1.127-2(c)(4).

3. IRC § 127(a)(2).