How to Give Your Working Kids a Tax-Free Education Boost

If your kids work in your business, you might already appreciate the extra help (and the built-in trust factor). But here’s something you might not know:

You can also give them education benefits and structure it so it’s a win-win for both of you:

Your business gets a tax deduction
Your child receives tax-free education benefits

The key is doing it right.

How It Works Without a Section 127 Plan

If your child needs certain education to do their job or meet a law or regulation related to their role, you can pay for it as a tax-free fringe benefit without setting up a formal Section 127 plan.

For example:

Your child works in your bookkeeping department, and you cover the cost of an accounting course that directly helps them in their role.
The course is necessary for them to perform their duties effectively, so it qualifies as a working condition fringe benefit meaning tax-free for them, deductible for you.

In general, you cannot pay for an entire undergraduate degree program as a work-related education expense outside a Section 127 plan. If you do, it’s considered taxable income to your child.

However, certain individual courses within that degree may still qualify, if they’re directly related to the job.

What About Graduate School?

Here’s some good news: MBA programs can qualify as work-related education if they maintain or improve skills for the employee’s current profession or role in your business.

The Section 127 Plan Advantage

If your child is age 21 or older, you can use a Section 127 plan to provide up to $5,250 in tax-free education benefits each year—no matter the subject.

This can open the door to more flexibility while still keeping things tax-efficient.

Why This Matters

Providing tax-free education benefits to your children who work in your business is more than a smart tax move, it’s an investment in your business’s future. You’re building their skills, strengthening your team, and creating incentives for them to stay engaged.

Education benefits for working children can be a powerful, tax-friendly strategy, if you follow the IRS rules closely. The right setup means deductions for you, tax-free perks for them, and long-term growth for your business.

If you’d like help putting a tax-beneficial education system in place, contact BASC Expertise and let’s make sure it’s done the right way from day one.