What requirements must an educational assistance plan meet for favorable tax treatment of benefits?

Author: Alice Gilman

Under +IRC § 127, educational assistance programs must be provided under separate, written plans that meet these criteria:

  • The program benefits employees who meet their employer's qualifications;
  • The program does not discriminate in favor of highly compensated employees or their dependents;
  • The program does not provide more than five percent of its benefits to shareholders or owners (i.e., individuals who own more than five percent of the stock or of the capital or profits);
  • Employees cannot choose cash instead of the benefits; and
  • The employer gives reasonable notice about the program to eligible employees.