While the calendar says summer, it feels a little like fall because school semesters are beginning. Employees may be thinking of ways to pursue more education and training, and employers could be thinking of ways to support this. There are sound reasons for putting an emphasis on education, but the budget may not be easily supportive. Fortunately, the tax law provides certain key education-related breaks to help manage the cost. Here’s a summary of the various breaks you might consider. This is an update of a blog that posted here several years ago, but it’s been updated to reflect changes made by the One Big Beautiful Bill Act (OBBBA).
Why employers should care about employees learning
Continual learning is important for both employers and employees.
- Employers want workers with up-to-date skills, specially in technology. As the presence of AI expands in the workplace, the importance of upskilling and reskilling is critical. Unfortunately, 87% of companies worldwide say there’s a skill gap.
- Employees view career development opportunities as a key factor in deciding whether to work for a particular company or remain on a job.
Employer-paid learning
Your business can pay part or all of the cost of continuing education or other courses for employees as a tax-free fringe benefit for employees and deductible by the business. Because this benefit is tax free to employees, it’s also exempt from payroll taxes. This means the business can offer a benefit that is fully deductible and saves 7.65% in FICA taxes that would otherwise be due if additional compensation were paid to employees to enable them to pursue their education.
- If courses are job-related, there is no dollar limit on the tax-free perk. Job-related expenses include, for example, a continuing education course in the employee’s field of work.
- If courses are not job-related so that employees are free to pursue almost any higher education courses, the exclusion of this benefit from taxable compensation is limited to $5,250 per year. The company must adopt an educational assistance plan and no more than 5% of benefits under the plan can be used for highly-compensated employees, such as owners and top executives. In a business with only a handful of employees, this type of plan may be impractical because owners and their families who work for the business cannot effectively benefit from it.
Helping employees with student loans
Employers with an educational assistance plan can pay employees’ student loans up to the annual cap. The benefit is limited in 2025 to $5,250. This dollar limit will be indexed for inflation, so expect a higher limit in 2026.
Employers can also base their contributions to 401(k) plans or SIMPLE IRAs on student loan repayment. An employee may not be able to repay their loans and make contributions to the retirement plan. An employee who forgoes a plan contribution would still build up retirement savings through employer contributions related to loan repayments. This is something employees should be informed of during the period for committing to their 2026 plan contributions.
Workplace training
There are a variety of areas that require companies to train employees in the best practices. These include:
- Onboarding
- Anti-sexual harassment training
- Safety training
- Customer skills
The training for these areas can be covered through online courses, enabling employees to take them at optimum times. There are also virtual reality (VR) and augmented reality (AR) options for employee training. SHRM points out that VR trainings offers many advantages over traditional ways, including accelerated learning and cost savings. The cost of equipment used in VR and AR can be quickly written off.
Self-employed individuals
If you don’t have a company to pay for your continuing education because you’re self-employed, you can do it yourself. While you can’t use an educational assistance program, you can deduct your business-related courses as a business expense. For example, you’re a Schedule C filer and take a continuing education course to maintain your professional license. The cost is a deduction that reduces your net earnings from self-employment. This cuts your income taxes as well as reducing your self-employment tax.
Final thought
The quotation taped to my computer screen from Benjamin Franklin reads: “An investment in knowledge pays the best interest.” Helping employees manage the high cost of education can be a win-win for the company and staff. To learn more about education tax breaks, see IRS Publication 970, Tax Benefits for Education.
