Article Date:
July 2009

Word Count:



Federal Tax Deductions with Section 127 Plan for Child’s College Education

Here’s an advantage to being in business for yourself: Create a tax-favored educational assistance program. Hire your child age 21 or older. Grant the education program to all your employees, including your employee-child. Now, you may deduct up to $5,250 of your employee-child’s college tuition and book fees. The $5,250 is the annual, per-employee limit on Section 127 educational assistance.1


To create the benefit, you need a plan. Good planning can make this benefit well worth the effort.


To put the plan in place, your child must be



age 21 or older,


a legitimate employee of your business,


not a more-than-5-percent owner of your business, and


not your dependent.


The Age-21-or-Older Rule


The age-21-or-older rule is buried in the “attribution” rules that apply to this educational assistance plan. Under the attribution rules, children under the age of 21 are deemed to own the same percentage of the business as do their parents.2


This rule is important. The law does not allow a Section ... Log in to view full article.

Log in to view full article

Already a subscriber?

Email Address


Log In Send me my password

You'll be able to read the full article and get instant access to the last few issues of the Tax Reduction Letter

Not yet a subscriber?
with a money-back guarantee