Employer-Provided Education Assistance After the OBBBA

For many small business owners, an employer-provided educational assistance program, often referred to as a Section 127 plan, is one of the most effective ways to invest in employees while gaining tax advantages. When properly structured, these programs allow you to cover tuition, fees, books, and other qualified education costs without those benefits counting as taxable income for your staff. Historically, employers could provide up to $5,250 per employee each year under this framework, making it a valuable tool.
The One Big Beautiful Bill Act (OBBBA) has reshaped educational assistance programs in meaningful ways, giving small business owners new clarity and flexibility. Two changes stand out:

• Permanent student loan repayment
  • Employers can now apply the annual $5,250 limit toward student loan repayment on a permanent basis.
  • This had previously been a temporary, pandemic-era measure that left businesses uncertain about its future.
  • With the change, you can confidently help employees reduce their debt, an especially powerful tool in today’s labor market.
• Inflation indexing for the $5,250 cap
  • The long-standing annual limit will no longer remain fixed.
  • Starting in future years, the IRS will adjust the cap for inflation.
  • This ensures the benefit keeps its value over time, even as education costs rise.

Together, these updates make educational assistance programs more practical, sustainable, and attractive for both employers and employees.

These updates make educational assistance programs not only more flexible but also more predictable for small employers. Yet, as with any benefit program, there are important details to manage. Owners and shareholder-employees should be mindful of special limits that may apply to them, and eligibility rules must be structured so that benefits are distributed fairly across the workforce. And of course, budgeting is critical. While the benefit is deductible, it still represents an upfront cash expenditure that should be planned for within a larger compensation strategy.

The value of offering educational assistance cannot be overstated. In a competitive market for talent, employees are seeking more than a paycheck. They want support for professional growth and relief from the burden of rising education costs. By covering tuition or helping with loan repayment, you not only set your company apart but also reinforce a culture of loyalty and long-term development. With OBBBA in place, these programs have become more practical and sustainable, giving small businesses an opportunity to stand out as employers of choice.

If you are ready to explore how educational assistance can strengthen your overall benefits strategy, contact E1 today. We can be reached by email at sales@eosg.com or by phone at 281-492-9292. We can help you design and maintain a program that supports your employees’ goals while ensuring compliance and maximizing value for your business.