When it comes to perks at work, free stuff is always a bonus. But as great as complimentary coffee and doughnuts might be, employees are increasingly looking for ways to eliminate or pay down student debt, which now averages $39,075 per borrower. One tax-favored benefit can be found in the tax code. Under section 127, employers can provide tax-free assistance to employees who pursue their education while working or (more recently) for repaying student loans.

While section 127 was created by Congress in 1978 as a temporary tax benefit (it was made permanent in 2012), with college costs skyrocketing (costs have more than doubled in the 21st century), many employers are giving section 127 a fresh look. The IRS recently updated its guidance—here’s what you need to know.

Section 127 of the tax code allows employers to provide up to $5,250 per year in tax-free educational assistance to employees for tuition, fees, books, and equipment.

This amount is an exclusion, not a deduction. This means the amount is deductible by your employer and is not included in your taxable income.

To qualify, an educational assistance plan must be a written benefits plan (you can see a sample of what that looks like here). While that sounds super formal, it’s no different than the health care, retirement benefits, or commuter plan that your company likely already has in place.

How much educational assistance is available?

The amount of available assistance is up to $5,250 per employee, per year.

If that sounds low, you’re right—the limit hasn’t changed in more than 40 years. Although the cost of college has grown faster than the pace of inflation, the annual benefit has never moved. If it had been adjusted for inflation, the benefit would now be worth $27,737.89 per year. While that kind of boost isn’t happening, the benefit will be indexed to inflation starting in 2027.

And, the benefits are “use it or lose it.” Any unused amounts can’t be carried forward to the next year.

What’s included in “educational assistance”?

Educational assistance benefits include payments for tuition, fees, and similar expenses, books, supplies, and equipment. The term includes benefits that cover both undergraduate and........

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