transfer of education benefit

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Transfer Your Post-911 GI Bill

The Post-9/11 GI Bill allows you to transfer all or some of your unused benefits to your spouse or dependent children. The military determines whether you can transfer benefits to your family. Once your service approves your eligibility to transfer your benefits, your dependents can apply for them through the VA.

Who Can Transfer Their GI Bill Benefits?

Any active military member or member of the Selected Reserve who is eligible for the Post-9/11 GI Bill who:

• Completes at least 6 years of service on the date the request is approved,  and
• Agrees to add 4 more years of service
• Is eligible to be retained for four years from the date of election to transfer benefits, and not be precluded from serving the four additional years prior to approval by policy or statute.

You MUST transfer benefits while on active duty or serving in the Selected Reserve.

Who Can Receive Transferred GI Bill Benefits?

If you are eligible to transfer benefits, you can transfer them to:

• Your spouse
• One or more of your children
• Any combination of spouse and child

The family member must be enrolled in the Defense Eligibility Enrollment Reporting System (DEERS) at the time of transfer.

If your child gets married, it doesn't affect their eligibility to receive the transferred benefits.

If you get divorced, your ex-spouse can still use the transferred benefits.

You can take away or change the transferred benefits to any dependent at any time.

How to Transfer Your Post-9/11 GI Bill Benefits

You can only apply to transfer benefits while you are on active duty or serving in the Selected Reserve. You should apply either online at the DMDC Website or by following your service's instructions.

After leaving the military you can make changes to the amount of GI Bill transferred to each dependent by contacting the VA.

Details on Using Transferred GI Bill Benefits

You can transfer any remaining portion of your GI Bill entitlement. If you haven't used any, you can transfer it all.

Pro-tip: While you are on active duty or serving in the Selected Reserve, you should give each of your dependents at least one month of transferred GI Bill. This gets them in the system. You can always add or subtract entitlements after you get out. But, if you don't add them into the system with at least one month of entitlement while you are on active duty or in the Selected Reserve, you are out of luck later. You won't be able to add them.

• May start to use their benefits immediately
• May use their benefits while you are in service or after you get out
• Can't get the monthly housing allowance while you are on active duty
• If you got out of of the military before Jan. 1, 2013, they have 15 years from your discharge to use their benefits. If you get out after that, there is no time limit
• May start to use their benefits only after you have completed at least 10 years of service
• May use their benefits while you are on active duty or after you get out
• Can't use their benefits until they have a high-school diploma or certificate, or they have turned 18
• Can get the monthly housing allowance even though you are on active duty
• Can use the transferred benefits only until they are 26 years old.

Keep Up With Your Education Benefits 

Whether you need a guide on how to use your GI Bill, want to take advantage of tuition assistance and scholarships, or get the lowdown on education benefits available for your family, Military.com can help. Subscribe to Military.com to have education tips and benefits updates delivered directly to your inbox.

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Frequently asked questions about educational assistance programs

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FS-2024-22, June 2024

This fact sheet provides answers to frequently asked questions (FAQs) related to educational assistance programs under section 127 of the Internal Revenue Code (Code) (a section 127 educational assistance program).

These FAQs are being issued to provide general information to taxpayers and tax professionals as expeditiously as possible. Accordingly, these FAQs may not address any particular taxpayer’s specific facts and circumstances, and they may be updated or modified upon further review. Because these FAQs have not been published in the Internal Revenue Bulletin, they will not be relied on or used by the IRS to resolve a case. Similarly, if an FAQ turns out to be an inaccurate statement of the law as applied to a particular taxpayer’s case, the law will control the taxpayer’s tax liability. Nonetheless, a taxpayer who reasonably and in good faith relies on these FAQs will not be subject to a penalty that provides a reasonable cause standard for relief, including a negligence penalty or other accuracy-related penalty, to the extent that reliance results in an underpayment of tax. Any later updates or modifications to these FAQs will be dated to enable taxpayers to confirm the date on which any changes to the FAQs were made. Additionally, prior versions of these FAQs will be maintained on IRS.gov to ensure that taxpayers, who may have relied on a prior version, can locate that version if they later need to do so .

More information about reliance is available . These FAQs were announced in IR-2024-167 .

Background on educational assistance programs

You may exclude certain educational assistance benefits from your gross income if they are provided under a section 127 educational assistance program. That means that you won’t have to pay any tax on the amount of benefits up to $5,250 per calendar year and your employer should not include the benefits with your wages, tips and other compensation shown in box 1 of your Form W-2. However, it also means that you can’t use any of the tax-free education expenses as the basis for any other deduction or credit, including the lifetime learning credit. If any benefits are received under a program that does not comply with section 127 or if the benefits are over $5,250, the amounts may be excluded under section 117 or deducted under section 162 or section 212 if the requirements of such section are satisfied.

Amounts paid under a section 127 educational assistance program are generally deductible by the employer as a business expense under section 162.

Questions and answers on educational assistance programs

Q1. what is an educational assistance program.

A1. An educational assistance program is a separate written plan of an employer for the exclusive benefit of its employees to provide employees with educational assistance.

To qualify as a section 127 educational assistance program, the plan must be written, and it must meet certain other requirements. Your employer can tell you whether there is a section 127 educational assistance program where you work.

A sample plan for employers PDF is available. An employer may tailor its plan to include, for example, conditions for eligibility, when an employee’s participation in the plan begins and prorated benefits for part-time employees. However, a program cannot discriminate in favor of officers, shareholders, self-employed or highly compensated employees in requirements relating to eligibility for benefits.

Q2. What are educational assistance benefits?

A2. Tax-free educational assistance benefits under a section 127 educational assistance program include payments for tuition, fees and similar expenses, books, supplies and equipment. The payments may be for either undergraduate- or graduate-level courses. The payments do not have to be for work-related courses.

Tax-free educational assistance benefits also include principal or interest payments on qualified education loans (as defined in section 221(d)(1) of the Code). Section 127 requires that such loans be incurred by the employee for the education of the employee and not for the education of a family member such as a spouse or dependent. These payments must be made by the employer after March 27, 2020, and before January 1, 2026 (unless extended by future legislation). The payments of any qualified education loan can be made directly to a third party such as an educational provider or loan servicer or directly to the employee, and it does not matter when the qualified education loan was incurred. A qualified education loan is generally the same as a qualified student loan. See Qualified Student Loan in Chapter 4 of Publication 970, Tax Benefits for Education.

Educational assistance benefits do not include payments for the following items:

• Meals, lodging or transportation.
• Tools or supplies (other than textbooks) that you can keep after completing the course of instruction (for example, educational assistance does not include payments for a computer or laptop that you keep).
• Have a reasonable relationship to the business of your employer, or
• Are required as part of a degree program.

An employer may choose to provide some or all of the educational assistance described above. The terms of the plan may limit the types of assistance provided to employees.

Q3. What is the total amount that an employee can exclude from gross income under section 127 of the Code per year?

A3. Under section 127, the total amount that an employee can exclude from gross income for payments of principal or interest on qualified education loans and other educational assistance combined is $5,250 per calendar year. For example, if an employer pays $2,000 of principal or interest on any qualified education loan incurred by the employee for the education of the employee, only $3,250 is available for other educational assistance.

The annual limit applies to amounts paid and expenses incurred by the employer during a calendar year. If an employee seeks reimbursement for expenses incurred, the expenses must be paid by the employee in the same calendar year for which reimbursement is made by the employer, and the expenses must not have been incurred prior to employment (however, qualified education loans may be incurred by the employee in prior calendar years and prior to employment, and payments of principal and interest may be made by the employer in a subsequent year). “Unused” amounts of the $5,250 annual limit cannot be carried forward to subsequent years.

Q4. What is a qualified education loan?

A4. A qualified education loan (as defined in section 221(d)(1)) is a loan for education at an eligible educational institution. Eligible educational institutions include any college, university, vocational school or other postsecondary educational institution as defined in sections 221(d)(2) and 25A(f)(2). The Department of Education determines whether an organization is an eligible education institution. A loan does not have to be issued or guaranteed under a Federal postsecondary education loan program to be a qualified education loan.

Q5. How can payments of qualified education loans be made?

A5. In the case of payments made after March 27, 2020, and before January 1, 2026 (unless extended by future legislation), depending on how a particular employer has designed its section 127 educational assistance program, an employer may provide payments of principal or interest on an employee’s qualified education loans (as defined in section 221(d)(1) of the Code) for the employee’s own education directly to a third party such as an educational provider or loan servicer, or make payments directly to the employee.

Generally, the payment by an employer of principal or interest on any qualified education loan incurred by the employee for the education of the employee under section 127(c)(1)(B) is only available if an employer amends the terms of its plan to include the benefit. If the plan is currently written to provide generally for all benefits provided under section 127, then it is possible that the plan would not need to be amended to provide for the qualified education loan benefit under section 127(c)(1)(B).

Q6. Are employer payments of qualified education loans for spouses and dependents excluded from gross income under section 127 of the Code?

A6. Under section 127 of the Code, an educational assistance program must be provided for the exclusive benefit of employees. A program that provides benefits to the spouse or dependents (as defined in section 152) of an employee is not a section 127 educational assistance program. Spouses and dependents of employees who are also employees, or spouses and dependents of owners who are also employees, may receive benefits under the program, but they are subject to a rule that prohibits discrimination in favor of these employees in requirements relating to eligibility for benefits, and to a rule that limits the benefits that may be provided to them under the program to 5 percent of the benefits under the program.

Section 127 provides an exclusion from gross income for loan payments made by an employer after March 27, 2020, and before January 1, 2026 (unless extended by future legislation), on a qualified education loan incurred by the employee for the employee’s own education. Thus, a payment of principal or interest by the employer on a loan incurred by an employee for the education of the employee’s spouse or dependent may not be excluded from the employee’s gross income. In addition, a payment by the employer on a loan incurred by the parent of an employee for the education of the employee may not be excluded from the parent’s or the employee’s gross income.

Q7. Can student debt be reimbursed under a section 127 educational assistance program?

A7. Student debt may consist of a variety of expenses. If the debt was incurred as a result of expenses that are permissible benefits under section 127 of the Code (such as tuition, books, equipment, qualified education loans (in the case of payments made before January 1, 2026 (unless extended by future legislation)), etc.), the employer may reimburse the employee for these expenses as educational assistance benefits, and the employee could then use those funds to help satisfy his or her debt. To be excluded from the employee’s gross income, the employee must be prepared to substantiate the expenses to the employer.

Q8. Can self-employed individuals, shareholders and owners receive educational assistance under a section 127 educational assistance program?

A8. While there are no specific income limits for receiving educational assistance benefits, an educational assistance program must satisfy certain requirements under section 127 of the Code and Treasury Regulation § 1.127-2, including not being discriminatory in favor of employees who are highly compensated employees.

An individual who is self-employed within the meaning of section 401(c)(1) may receive educational assistance. While shareholders and owners may receive educational assistance, not more than 5 percent of the amounts paid or incurred by the employer for educational assistance during the year may be provided for the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the year) owns more than 5 percent of the stock or of the capital or profits interest in the employer.

As a practical matter, if the owners are the only employees, they cannot receive educational assistance under section 127 because of the 5 percent benefit limitation described above. The following formula can be used to determine the amount of educational assistance that an owner/employee can receive: [total amount of educational assistance provided to employees other than the owner/employee] x .05263158 = [amount of educational assistance that the owner/employee can receive (rounded down to two decimal places but not greater than $5,250)].

Q9. Are there other exclusions from gross income for educational assistance?

A9. Working condition fringe benefit: If the benefits qualify as a working condition fringe benefit, regardless of amount, they are excluded from your gross income and your employer does not have to include them in your wages. A working condition fringe benefit is a benefit which, had you paid for it, you could deduct as an employee business expense. For more information on working condition fringe benefits, see Working Condition Benefits in section 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits.

Educator expense deduction: In 2023, educators can deduct up to $300 ($600 if married filing jointly and both spouses are eligible educators, but not more than $300 each) of unreimbursed business expenses. The educator expense deduction, claimed on Form 1040 Line 11, is available even if an educator doesn’t itemize their deductions. To do so, the taxpayer must be a kindergarten through grade 12 teacher, instructor, counselor, principal or aide for at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.

Those who qualify can deduct costs like books, supplies, computer equipment and software, classroom equipment and supplementary materials used in the classroom. Expenses for participation in professional development courses are also deductible. Athletic supplies qualify if used for courses in health or physical education.

For additional IRS resources see our tax topic on educator expense deduction .

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Tax-free benefits up to $5,250 per calendar year

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The U.S. Treasury Department and IRS today issued a release— FS-2024-22 —providing “frequently asked questions” (FAQs) regarding educational assistance programs.

As explained in a related IRS release— IR-2024-167 —taxpayers may exclude from their gross income certain benefits used for education, such as payments for tuition, fees, books, supplies, and equipment, as well as principal or interest on qualified education loans paid by employers after March 27, 2020, and before January 1, 2026. These benefits are tax-free up to $5,250 per calendar year and should not be included in the wages, tips, and compensation reported on Form W-2.

However, these tax-free educational benefits cannot be used to claim other deductions or credits, such as the lifetime learning credit. If benefits exceed $5,250 or are received under a non-compliant program, they may still be excluded if they meet certain criteria. Additionally, amounts paid under an educational assistance program can generally be deducted by the employer as a business expense.

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.