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I own an S corp and I am the only employee. I think I would like to create an educational assistance program for the company to pay for my student loans with pre-tax dollars. IRS publication 15-b says that I must create a written plan and it provides a list of criteria to allow myself to use the program.

One of those criteria is "The program doesn't provide more than 5% of its benefits during the year for shareholders or owners (or their spouses or dependents). A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business." Would I break this criteria if I am the only employee and I am receiving this benefit?

https://www.irs.gov/publications/p15b#en_US_2021_publink1000193667

Chapter 11 of https://www.irs.gov/pub/irs-pdf/p970.pdf describes Employer-Provided Educational Assistance and Chapter 4 describes a qualified loan, which I qualify for.

I have attached screenshots to make it easier for you to not have to scour these pages for what I am seeing but I also attached links in case I am missing something.

Thank you for looking at this with me!

Education Assistance Program Pub 15-b

Chapter 11 of IRS Pub 970

Chapter 4 of IRS Pub 970

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    You’re the owner and 100% of the benefits would go to you. That certainly sounds as though you are out of luck. Commented Nov 21, 2021 at 3:06
  • Unfortunately I think you are correct :( I don't think there is the provision for the single owner / employee to use the benefit
    – Matt
    Commented Nov 21, 2021 at 13:56

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It's clear to me (a non-lawyer) that the intent of most of the program rules are so that the program benefits people with a real financial need.

One of the tests that excludes "highly compensated employees" is the 5% ownership rule (see the green highlights in the link below). I think there is this bad assumption that if you own a large share of the company, then you must not need that financial assistance.

Interestingly, they have a special case for treating "Yourself (if you're a sole proprietor)" as employees (see highlights in yellow).

Highlights from IRS Publication 15-B (2021)

My non-lawyer interpretation + potential tax savings = I'm very close to paying a fringe benefits specialist or tax lawyer to get a clear answer.

I'm in a similar situation - I 100% own a C-Corp and I am the only employee. This assistance would help a lot.

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  • The wording is very confusing as a non lawyer. My non lawyer side of my brain says we do not qualify but I suppose there is no reason why we couldn't ask our tax accountants for an opinion before hiring a specialist or tax lawyer.
    – Matt
    Commented Dec 4, 2021 at 19:12

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