Resident · Tax Essentials
Ask whether your employer has a §127 plan
2 min read
Your employer may be able to pay education costs or your own student loans tax-free through a written §127 plan.
THE IDEA
Section 127 educational assistance can exclude up to $5,250 per year from income for an employee’s tuition and student-loan principal or interest combined. The One Big Beautiful Bill Act removed the December 31, 2025 sunset, making the benefit permanent. Inflation indexing begins in 2027, rounded to the nearest $50.
No double benefitInterest excluded under §127 cannot also be claimed under the §221 student-loan interest deduction. Parent PLUS debt for a child does not qualify; the benefit applies to the employee’s own education and requires a separate written employer plan.
Your next steps
- Ask HR whether a written §127 plan exists.
- Confirm whether tuition and loan assistance share the annual cap.
- Keep excluded interest out of the separate deduction calculation.
Check your understanding
Select each question to reveal the answer.
✓ $5,250.
✓ No. It requires a separate written employer plan.
✓ No.
✓ No. The benefit is for the employee’s own education.
Planning questions
- Does your employer offer a written §127 educational-assistance plan, and what expenses does it cover?
- How will you track employer-paid interest so it is not also claimed as a deduction?