Education Fringe Benefits for Family Employees

April 26, 2023
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If you have children who work in your business, you should consider offering them education fringe benefits. When you do this right, you can create some excellent tax deductions for your business while also providing tax-free education benefits for your child (or children).

Do I Need a Section 127 Plan?

This can be accomplished without a Section 127 educational assistance plan. The key is providing education benefits that will help them do their job better. Perhaps they need certain education for the business or training to comply with a specific law or regulation.

Do Undergraduate Programs Qualify?

Most undergraduate degree programs won’t qualify as work-related education. If you pay for such programs outside of a Section 127 plan, you must treat the payments as taxable income for the child-employee. However, certain individual courses within an undergraduate program could qualify. You may be able to evaluate them separately if they directly apply to that child’s role within your business. For example, accounting courses could qualify for tax-free working condition fringe benefit payments if your employee-child is performing an accounting job within the company.

Do MBA Programs Qualify?

Most MBA programs can qualify as work-related education as long as they maintain or improve the employee’s skills within the current business structure.

A Tax-Advantaged Business Strategy

It is a good idea to explore the potential tax advantages of education fringe benefits for children working within your business. You will also want to utilize the tax benefits of a Section 127 plan. Children aged 21 or older can qualify for up to $5,250 in tax-free education benefits.

Not only are these education fringe benefits great for your children and their education. They can be a cost-effective way to invest in the future of your business, while also providing nice annual tax advantages along the way.

To learn more about education fringe benefits, Section 127 college savings plans or other tax-advantaged family business strategies, contact Illumination Wealth today.