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From the brief of Friday, November 6, 2026 · No. 22

From the daily brief · Software

Section 127 tax-free tuition cap of $5,250 starts rising with inflation in 2027

If you pay for employee schooling or student loans, the cap is flat this year and indexed from next year.

By Carter Josephson · · 1 min read

What happened

The IRS's April 2026 fact sheet (FS-2026-10) says employers can exclude up to $5,250 per employee per calendar year of educational assistance, and that the limit is adjusted for cost of living for tax years beginning after 2026. It also says an employer must tell workers whether a section 127 program exists, and that the program must be a separate written plan.

What it means for a 10-to-50-person business

The change is small and not urgent. Take a 20-person electrical contractor that pays $3,000 a year toward an apprentice's classes. That sits under the cap today and under any likely 2027 figure, so nothing changes. It matters only if you pay near $5,250 per person, or pay student loans through a plan. The IRS has not published the 2027 dollar figure yet. The practical risk is paying benefits without a written plan, which can make the money taxable wages.

What to do
Wait

If you reimburse tuition or loans, confirm you have a written section 127 plan this month. Watch for the IRS's 2027 dollar figure before setting 2027 budgets.

What it costs
What it costs
Written plan check
1 hr (about $30 at $30/hr, or ask your payroll provider)
Cap today
$5,250 per employee per year, unchanged for 2026
Doing nothing
$0 if you have a written plan; if you do not, reimbursements above plain job-training rules can be taxable wages
Sources
irs.gov (primary)

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