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On April 20, the IRS issued Fact Sheet 2026-10, which provides FAQs about educational assistance programs and an updated sample program document. This fact sheet supersedes the IRS’ 2024 FAQs in Fact Sheet 2024-22. See our prior alert here.
As background, under a Code section 127 educational assistance program, an employer can provide up to $5,250 per year in tax-free qualified education benefits to employees. These benefits include tuition, fees and similar expenses, books, supplies, and equipment. Effective March 27, 2020, these benefits also include principal and interest payments on qualified education loans (“Student Loans”). Recently, the One Big Beautiful Bill Act (“OBBBA”) made the Student Loan provision permanent and, beginning in 2027, indexed the $5,250 annual limit.
The 2026 FAQs restate, with minor revisions, the 2024 FAQs, which largely restated long-standing IRS guidance governing educational assistance programs. The 2026 FAQs also include the following noteworthy changes:
- For educational expenses other than Student Loans, the 2024 FAQs required that “expenses must be paid by the employee in the same calendar year for which reimbursement is made by the employer.” The sample program document had similar language. The 2026 fact sheet revises the statement to say that expenses merely “must not have been incurred prior to employment.”
As we noted in our alert on the 2025 FAQs, neither the Code nor the Regulations imposed the timing restrictions that the 2024 FAQs noted. Many employers reimburse educational expenses in the calendar year after the employee paid them. For example, an employee pays for a course in the Fall of year 1 and is required to obtain a minimum GPA or complete a course to qualify for a reimbursement. The employer reimburses the course once the employee has received the grade or completed the course in the beginning on year 2. The 2024 FAQs could be interpreted to imply that this expense would be ineligible for tax-free reimbursement. Thus, the clarification in the 2026 FAQs is a welcome clarification of the IRS’ interpretation of the timing rule. - The 2026 FAQs clarify that, unlike other expenses, an employee may incur Student Loan expenses prior to employment. For example, the employee incurred the loan while in college in 2000 and is still making Student Loan payments in 2026. The employer can reimburse/pay the Student Loan payments in 2026.
- The 2026 FAQs revised language from the 2024 FAQs to make clear that the employer “must” (rather than “can”) inform the employees about the program and its terms.
- The 2026 FAQs reflect the OBBBA indexing provision, beginning in 2027.
- The 2026 FAQs clarify that the Code section 132 working condition fringe benefit exclusion for certain educational expenses is a benefit that, had the employee paid for it, the employee could deduct as an employee business expense in relation to the employer’s trade or business.
Note that FAQs are merely informal guidance and non-precedential. In fact, the IRS expressly states that it issued the FAQs to “provide general information . . . as expeditiously as possible.” The IRS also states that, if an FAQ turns out to be an inaccurate statement of the law as applied to a particular taxpayer’s case, the law will control the taxpayer’s tax liability. But, taxpayers who rely in good faith on the FAQs will satisfy the reasonable cause standard for penalty relief.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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