IRS Publication 15B — Employer's Tax Guide to Fringe Benefits
This is the passage the answer relied on, shown in the document's own words. The highlighted text is the exact excerpt quoted — extracted verbatim by the citation system, so it cannot be fabricated.
Open official source at page 12 ↗
“Y ou can exclude up to $5,250 of educational assistance you provide to an employee un- der an educational assistance program from the employ- ee’s wages each year.”
Exception for S corporation shareholders. Don’t treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder for this purpose is someone who directly or indirectly owns (for any day during the tax year) more than 2% of the corporation’s stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but don’t treat the benefit as a reduction in distributions to the 2% shareholder. For more information, see Revenue Ruling 91-26, 1991-1 C.B. 184. Plans that favor highly compensated employees. If your plan favors highly compensated employees as to eligibility to participate, contributions, or benefits, you must include in their wages the value of taxable benefits they could have selected. A plan you maintain under a collective bargaining agreement doesn’t favor highly compensated employees. A highly compensated employee for this purpose is any of the following employees.
1. An officer.
2. A shareholder who owns more than 5% of the voting power or value of all classes of the employer’s stock.
3. An employee who is highly compensated based on the facts and circumstances.
4. A spouse or dependent of a person described in (1), (2), or (3).
Plans that favor key employees. If your plan favors key employees, you must include in their wages the value of taxable benefits they could have selected. A plan favors key employees if more than 25% of the total of the nontaxable benefits you provide for all employees under the plan go to key employees. However, a plan you maintain under a collective bargaining agreement doesn’t favor key employees. A key employee during 2026 is generally an employee who is either of the following.
1. An officer having annual pay of more than $235,000.
2. An employee who for 2026 is either of the following. a. A 5% owner of your business. b. A 1% owner of your business whose annual pay is more than $150,000.
Excerpt shown from a longer document — use the official source button above to read the complete publication.