IRS Updates FAQs on Section 127 Educational Assistance Programs

The IRS recently updated its FAQs on employer-sponsored Section 127 educational assistance programs. The FAQs largely restates the FAQs that were last updated in 2024, with one notable change with respect to timing. The 2024 FAQs provided that the employee must have paid the relevant educational expenses in the same calendar year that the employer reimbursed the expenses. The 2026 FAQs revised this rule, providing only that the employee must not have incurred the expenses prior to employment. This is with the exception of student loans, which can be incurred prior to employment and reimbursed by the employer at a later date via the EAP. The FAQs are also updated to reflect the inflation-indexing provision that will apply beginning in 2027. While IRS FAQs are not binding law, taxpayers who rely on them in good faith will be eligible for reasonable cause penalty relief. For more information on the rules governing educational assistance programs, visit Tax Facts Online. See Q8889.