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Amazon announced on September 9 that it will pay tuition for most of its employees. This retailer is the latest company to provide education-related allowances to attract more workers in a historically tight market, but there is at least one major caveat: under current federal regulations, they can only provide up to $5,250 per year.

Amazon Global Consumer CEO Dave Clark said that the $1.2 billion investment is designed to build on the company's career choice plan, which previously covered some tuition fees and provided on-site courses. The company now hopes to pay part of the tuition, textbooks and other expenses for more than 750,000 operating employees across the United States starting in January, thereby eliminating "the biggest obstacle to education-time and money."

Prior to Amazon’s announcement, competitors such as Wal-Mart and Target also took similar measures. Both companies have recently stated that they will provide tuition assistance to their employees. There are currently a record 10.9 million job vacancies in the United States, and employers are working hard to attract and retain employees. In addition to benefits such as signing bonuses and higher wages, college tuition assistance may help alleviate this problem.

But how far can these educational benefits go? For most employees who go to college, they may not be able to pay the full cost of a four-year degree.

Although Amazon’s offer is called “full tuition,” employees can only receive up to $5,250 per year to pay for education-related expenses. This is the maximum amount that a company can invest in employee education each year without taxing employees under a federal program called Section 127.

As a result of this regulation, many other companies, including Disney and McDonald's, also provide educational benefits of up to $5,250.

As the Aspen Institute pointed out in its study on Employer Education Assistance (pdf) last June, the $5,250 allowance was issued in 1986, when the average tuition fee for American undergraduates was only $2,312. According to a study by the Council of American Universities (pdf), the in-state tuition for public four-year universities in the United States is now US$10,560, while the average out-of-state tuition is about US$27,020.

Some companies have surpassed the $5,250 reimbursement cap by directly cooperating with certain institutions to pay a higher share of tuition fees. For example, if an employee completes the first bachelor's degree online through Arizona State University, Starbucks will pay 100% of the tuition.

Amazon said it has appealed to schools that are interested in working with the company to help employees earn a bachelor's degree, but there are no more details yet.

The retailer has previously provided financial support to employees who wish to obtain certificates and associate degrees in high-demand industries such as aircraft mechanics, commercial driving, and nursing. Since 2012, approximately 50,000 employees have enjoyed these benefits.

Peter Capelli, a professor of management and human resources at the Wharton School of Business at the University of Pennsylvania, pointed out that because of Amazon’s well-known high turnover rate, the number of employees benefiting from the company’s education program so far may represent only a small portion of its workforce.

Amazon will only pay 50% of college fees for part-time employees. For students who don’t want to work full-time while completing their degree, this may make the deal less sweet.

"The caveat of their plan is that very few people can use these programs...because it means you have to go to school in the evenings and weekends, which is difficult," Capri told Quartz. "In a typical company, about 2% of people can do it. Here it will be much less, partly because if you don't stay for a long time, you can't use them."

An early version of this story showed that companies can pay $5,250 in tuition fees to employees each year without paying taxes; this is the dollar threshold for taxing employees under Section 127.

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