How H.R. 1 Changes Your Section 127 and 529 Education Programs

Among the changes for American employers (and workers) brought about by the recently signed H.R. 1 law (otherwise known as the One Big Beautiful Bill Act) are amendments to two Internal Revenue Service (IRS) tax codes:

Section 127, pertaining to educational assistance programs; and,
Section 529, pertaining to qualified tuition programs.

This article provides details on what’s new and how organizations and their total rewards professionals can continue to utilize — and expand or evolve — such programs to address organizational hiring, retention and workforce development goals.

“As work shifts toward skills-first hiring and agile learning, total rewards leaders have a real opportunity to shape career growth,” said Marta Turba, the vice president of content strategy at WorldatWork. “Modernizing education and tuition assistance programs are a key development strategy and can be used to best reflect how today’s workforce learns.”

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The New Law’s Impact on Section 127

Internal Revenue Code Section 127 allows employers to provide their employees with tax-free educational assistance up to an annual limit. To enable this tax benefit, payments to employees under related programs are generally excluded from their gross income.

A Section 127 benefit program, which requires a separate written plan, can be a true win-win by offering:

Employees the opportunity to receive educational assistance from their employers without those funds being counted as taxable income. This is a real financial advantage for employees, especially compared to paying for education out of pocket with after-tax dollars.
Employers the opportunity to lean into — and support workforce upskilling/upscaling (and increased organizational preparedness) through — continuing education, with these efforts also providing payroll tax savings. Toward the latter benefit, amounts paid or incurred by the employer under a Section 127 educational assistance program are generally deductible as a business expense, reducing the employer’s taxable income.

Under the H.R. 1 law:

The annual limit will be indexed for inflation starting in 2026. For the 2025 tax year, the limit is $5,250, meaning employers can provide an eligible employee up to that dollar amount in tax-free assistance this year for education, including job-related non-degree credentials and certifications.
Student loan repayments, which had been a temporary inclusion under Section 127 starting in 2020 (part of the Coronavirus Aid, Relief and Economic Security [CARES] Act and extended through Dec. 31, 2025, by the 2023 Consolidated Appropriations Act), are now permanent eligible expenses. This is a tax-free benefit for employees up to the defined annual limit.

In a nutshell, the amendments provide some long-term clarity and a valuable opportunity for employers to support their employees’ financial well-being, while also potentially improving recruitment and retention efforts (to meet the organization’s current and upcoming workforce goals). For 127 plan benefits, employers must continue to heed IRS antidiscrimination requirements and can’t disproportionately benefit highly compensated employees or employees with an ownership stake greater than 5%. All workers must be given reasonable notice of program availability and terms.

To learn more about taking advantage of Section 127 programs, the Internal Revenue Service offers resources such as:

Cornell University’s Legal Information Institute also offers an excellent resource on all aspects of educational assistance programs.

The New Law’s Impact on Section 529

Internal Revenue Code Section 529 enables the availability of specific tax-qualified education savings plans, which Americans can start — and they, their employers and others can contribute to — in order to either prepay for tuition and certain other educational costs or let funds grow in investment accounts to be used tax-free later for qualified educational expenses.

Like Section 127 programs, those under Section 529 can serve as a win-win, giving:

Employees a tax-advantaged way to save for education — whether for their children, other family members or even themselves.
Employers the opportunity to foster their employees’ financial goals while supporting the development that meets organizations’ current and upcoming workforce needs. As an added benefit, some states offer tax deductions or credits for employer contributions to 529 plans.

Under the H.R. 1 law:

The definition of qualified expenses (those for which 529 funds may be used without tax repercussions) for K-12 education was expanded to include more than just tuition — now encompassing costs like books, materials and testing fees. (Federal tax-free withdrawals from 529 plans for K-12 tuition are limited to $10,000 per year per student. Tax implications can differ, though, by state.)
Perhaps most important for organizations, expenses related to qualified postsecondary credentials, including tuition and fees, are now applicable for programs authorized by the Workforce Innovation and Opportunity Act or approved by federal or state governments.
The ability to roll over funds from 529 accounts to Achieving a Better Life Experience (ABLE) accounts for the beneficiary or a family member, which was temporary, was made permanent.

In summation, the amendments expand key aspects of Section 529. Employers can utilize the changes — particularly as it pertains to postsecondary education, credentials, certifications, etc. — to support workforce development and enable the pursuit, internalization and utilization of skills that can best help workers and the organization succeed.

To learn more about Section 529 programs, the Internal Revenue Service offers resources such as:

Cornell University’s Legal Information Institute also offers an excellent resource on qualified tuition programs.

New Guidance, New Opportunities

Section 127 and 529 programs aren’t new, but WorldatWork’s Turba advised organizations to take advantage of the recent changes to view their tuition assistance programs with a fresh — and wider — lens.

“Today’s employees aren’t waiting years to build career momentum — they’re stacking skills quickly through microlearning, online platforms and industry-recognized certifications. These certifications — from cloud computing to project management to generative artificial intelligence — are becoming vital credentials,” Turba said. “While employers should encourage broad skill development, there’s a growing preference for deeper investments in programs that are most likely to deliver what organizations need today — in the form of deep, specialized expertise, not just quick, surface-level knowledge.”

She added modern certification credentials offer structured learning paths that equip employees with the advanced skills employers need right now.

“Microlearning and certifications are faster, more targeted, and accessible,” Turba said. “It’s time to move beyond a degrees-only model. If your tuition assistance program excludes microlearning and certifications, you’re missing both value and talent.”

Editor’s Note: Additional Content

For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics:

How H.R. 1 Changes Your Section 127 and 529 Education Programs

The New Law’s Impact on Section 127

The New Law’s Impact on Section 529

New Guidance, New Opportunities

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