IRS Publication 15B — Employer's Tax Guide to Fringe Benefits

• A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control.

• Yourself (if you’re a sole proprietor).

• A partner who performs services for a partnership. Exclusion from wages. You can exclude up to $5,250 of educational assistance you provide to an employee under an educational assistance program from the employee’s wages each year. Assistance over $5,250. If you don’t have an educational assistance plan, or you provide an employee with assistance exceeding $5,250, you must include the value of these benefits as wages, unless the benefits are working condition benefits. Working condition benefits may be excluded from wages. Property or a service provided is a working condition benefit to the extent that if the employee paid for it, the amount paid would have been allowable as a business or depreciation expense. See Working Condition Benefits, later in this section. Self-employed individuals, shareholders, and owners. While there are no specific income limits for receiving educational assistance benefits, an educational assistance program must satisfy certain requirements under section 127 of the Internal Revenue Code and Regulations section 1.127-2, including not being discriminatory in favor of employees who are highly compensated employees. An individual who is self -employed within the meaning of section 401(c)(1) of the Internal Revenue Code may receive educational assistance. While shareholders and owners may receive educational assistance, not more than 5% of the amounts paid or incurred by the employer for educational assistance during the year may be provided for the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the tax year) owns more than 5% of the stock or of the capital or profits interest in the employer. If the owners are the only employees, they can’t receive educational assistance under section 127 of the Internal Revenue Code because of the 5% benefit limitation described above. The following formula can be used to determine the amount of educational assistance that an owner/employee can receive. Multiply the total amount of educational assistance provided to employees other than the owner/employee by 5.263158% (0.05263158). Then round down to two decimal places, but not greater than $5,250.

Example. A company has a single owner/employee and 19 other employees. If each employee (other than the owner/employee) claims the educational assistance and receives the full $5,250, the owner/employee may also receive $5,250. The total amount of educational assistance provided to employees (other than the owner/employee) is $5,250 x 19 = $99,750. $99,750 x 0.05263158 = $5,250.000105 (rounded down to two decimal places is $5,250.00). If the owner/employee receives $5,250 in educational assistance, then the 5% benefit limitation would be satisfied. The total amount of educational assistance provided under the program is $99,750 + $5,250 = $105,000, and 5% of $105,000 is $5,250.

However, if not every employee receives the full $5,250, the amount the owner/employee may exclude is reduced. If only eight of the employees (other than the owner/employee) receive $5,250, then the total amount of educational assistance provided to employees (other than the owner/employee) is 8 x $5,250 = $42,000. $42,000 x 0.05263158 = $2,210.52636 (rounded down to two decimal places is $2,210.52). If the owner/employee receives $2,210.52 in educational assistance, then the 5% benefit limitation would be satisfied. The total amount of educational assistance provided under the program is $42,000 + $2,210.52 = $44,210.52, and 5% of $44,210.52 is approximately $2,210.52. Employee Discounts This exclusion applies to a price reduction you give your employee on property or services you offer to customers in the ordinary course of the line of business in which the employee performs substantial services. It applies whether the property or service is provided at no charge (in which case only part of the discount may be excludable as a qualified employee discount) or at a reduced price. It also applies if the benefit is provided through a partial or total cash rebate.

The benefit may be provided either directly by you or indirectly through a third party. For example, an employee of an appliance manufacturer may receive a qualified employee discount on the manufacturer’s appliances purchased at a retail store that offers the appliances for sale to customers.

Employee discounts don’t apply to discounts on real property or discounts on personal property of a kind commonly held for investment (such as stocks or bonds). They also don’t include discounts on a line of business of the employer for which the employee doesn’t provide substantial services, or discounts on property or services of a kind that aren’t offered for sale to customers. Therefore, discounts on items sold in an employee store that aren’t sold to customers aren’t excluded from employee income. Also, employee discounts provided by another employer through a reciprocal agreement aren’t excluded. Employee. For this exclusion, treat the following individuals as employees.

• A current employee.

• A former employee who retired or left on disability.

• A surviving spouse of an individual who died while an employee.

• A surviving spouse of an employee who retired or left on disability.

• A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control.

• A partner who performs services for a partnership. 12 Publication 15-B (2026)