As a small business owner, you’re always looking for ways to attract and retain great talent—without blowing your budget. One often-overlooked but incredibly powerful benefit is tax-free education assistance. That’s right: you can help your employees grow their skills and education with up to $5,250 per year, and it’s completely tax-free for both you and them.
Let’s break down how it works, why it’s valuable, and how your small business can start offering this benefit today.
What Is Tax-Free Education Assistance?
The IRS allows employers to provide up to $5,250 per employee per year in educational assistance that is excluded from taxable income. That means:
- Your employee doesn’t pay income tax on the benefit.
- You don’t pay payroll taxes on the amount.
- It’s a fully deductible business expense for your company.
The education covered can include tuition, fees, books, supplies, and equipment. While it doesn’t have to be job-related, it must be part of a qualified educational assistance program.
Why It’s a Smart Move for Small Businesses
Many small businesses assume education perks are just for the Googles and Amazons of the world—but they’re just as effective (if not more) for smaller teams. Here’s why:
1. Attract Better Talent
Offering education benefits can set your business apart when competing with larger companies for skilled employees.
2. Increase Retention
When employees see you’re invested in their future, they’re more likely to stick around.
3. Build a More Skilled Team
Encouraging continued learning helps your team bring back fresh knowledge, skills, and even certifications that directly benefit your business.
4. Boost Morale and Loyalty
Showing that you support professional development can boost employee morale and loyalty.
5. Save on Taxes
Unlike bonuses or raises, this benefit isn’t taxed for you or your team—making it a high-value, low-cost perk.
How to Set It Up
Setting up a qualified educational assistance program is easier than you might think. Here are the basic steps:
1. Create a Written Plan
You’ll need a formal document outlining the benefit, who’s eligible, and what expenses are covered.
2. Ensure Fair Access
The benefit must be offered in a non-discriminatory way. You can limit it to full-time employees or set other reasonable eligibility rules, but it can’t favor owners or highly paid staff.
3. Track and Document Payments
Keep clear records of reimbursements or direct payments. Employees don’t need to report the benefit on their taxes, but your business should keep records in case of an audit.
4. Consult Your Accountant
Tax laws can change. Make sure your program is compliant and optimized with the help of a qualified tax advisor or accountant.
Final Thoughts
If you’re a small business owner looking for a high-impact, low-cost way to invest in your team, tax-free education assistance is a no-brainer. It helps you build a more skilled, loyal workforce—and shows your employees that you’re invested in their long-term success.
Start small, keep it simple, and don’t leave this powerful benefit on the table.
Need help setting up an educational assistance program?
Talk to your accountant or drop a question below—we’re here to help small businesses thrive.