Publication 508: Tax Benefits for Work-Related Education; Publication 508 Main Contents

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Table of Contents

Qualifying Work-Related Education

You can deduct the costs of qualifying work-related education as business expenses. This is education that meets at least one of the following two tests.

The education is required by your employer or the law to keep your present salary, status, or job. The required education must serve a bona fide business purpose of your employer.
The education maintains or improves skills needed in your present work.

However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it:

Is needed to meet the minimum educational requirements of your present trade or business, or
Is part of a program of study that will qualify you for a new trade or business.

You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree.

You can use Figure A (see next page) as a quick check to see if your education qualifies.

Education Required by
Employer or by Law

Once you have met the minimum educational requirements for your job, your employer or the law may require you to get more education. This additional education is qualifying education if all three of the following requirements are met.

It is required for you to keep your present salary, status, or job,
The requirement serves a business purpose of your employer, and
The education is not part of a program that will qualify you for a new trade or business.

When you get more education than your employer or the law requires, the additional education can be qualifying education only if it maintains or improves skills required in your present work. See Education To Maintain or Improve Skills, below.

Example.

You are a teacher who has satisfied the minimum requirements for teaching. Your employer requires you to take an additional college course each year to keep your teaching job. If the courses will not qualify you for a new trade or business, they are qualifying education even if you eventually receive a master's degree and an increase in salary because of this extra education.

If your education is not required by your employer or the law, it can be qualifying work-related education only if it maintains or improves skills needed in your present work. This could include refresher courses, courses on current developments, and academic or vocational courses.

Temporary absence.

If you stop working for a year or less in order to get education to maintain or improve skills needed in your present work and then return to the same general type of work, your absence is considered temporary. Education that you get during a temporary absence is qualifying education if it maintains or improves skills needed in your present work.

Example.

You quit your biology research job to become a full-time biology graduate student for one year. If you return to work in biology research after completing the courses, the education is related to your present work even if you do not go back to work with the same employer.

Education you need to meet the minimum educational requirements for your present trade or business is not qualifying work-related education. The minimum educational requirements are determined by:

Once you have met the minimum educational requirements that were in effect when you were hired, you do not have to meet any new minimum educational requirements. This means that if the minimum requirements change after you were hired, any education you need to meet the new requirements can be qualifying education.

You have not necessarily met the minimum educational requirements of your trade or business simply because you are already doing the work.

States or school districts usually set the minimum educational requirements for teachers. The requirement is the college degree or the minimum number of college hours usually required of a person hired for that position.

If there are no requirements, you will have met the minimum educational requirements when you become a faculty member. You generally will be considered a faculty member when one or more of the following occurs.

Example 1.

The law in your state requires beginning secondary school teachers to have a bachelor's degree, including 10 professional education courses. In addition, to keep the job, a teacher must complete a fifth year of training within 10 years from the date of hire. If the employing school certifies to the state Department of Education that qualified teachers cannot be found, the school can hire persons with only 3 years of college. However, to keep their jobs, these teachers must get a bachelor's degree and the required professional education courses within 3 years.

Under these facts, the bachelor's degree, whether or not it includes the 10 professional education courses, is considered the minimum educational requirement for qualification as a teacher in your state.

If you have all the required education except the fifth year, you have met the minimum educational requirements. The fifth year of training is qualifying education unless it is part of a program of study that will qualify you for a new trade or business.

Certification in a new state.

Once you have met the minimum educational requirements for teachers for your state, you are considered to have met the minimum educational requirements in all states. This is true even if you must get additional education to be certified in another state. Any additional education you need is qualifying education. You have already met the minimum requirements for teaching. Teaching in another state is not a new trade or business.

Example.

You hold a permanent teaching certificate in State A and are employed as a teacher in that state for several years. You move to State B and are promptly hired as a teacher. You are required, however, to complete certain prescribed courses to get a permanent teaching certificate in State B. These additional courses are qualifying education because the teaching position in State B involves the same general kind of work for which you were qualified in State A.

Education that is part of a program of study that will qualify you for a new trade or business is not qualifying work-related education. This is true even if you do not plan to enter that trade or business.

If you are an employee, a change of duties that involves the same general kind of work is not a new trade or business.

Review courses to prepare for the bar examination or the certified public accountant (CPA) examination are not qualifying education. They are part of a program of study that can qualify you for a new profession.

All teaching and related duties are considered the same general kind of work. A change in duties in any of the following ways is not considered a change to a new business.

If your education meets the requirements described earlier under Qualifying Work-Related Education, you can generally deduct your educational expenses as business expenses. If you are not self-employed, you can deduct business expenses only if you itemize your deductions.

If your education qualifies, you can deduct local transportation costs of going directly from work to school. If you are regularly employed and go to school on a temporary basis, you can also deduct the costs of returning from school to home.

Temporary basis.

If your attendance at school is realistically expected to last (and does in fact last) for 1 year or less, you go to school on a temporary basis (unless there are facts and circumstances that would indicate otherwise).

If your attendance at school is realistically expected to last for more than 1 year or if there is no realistic expectation that the attendance will last for 1 year or less, the attendance is not temporary, regardless of whether it actually lasts for more than 1 year.

If your attendance at school initially is realistically expected to last for 1 year or less, but at some later date the attendance is realistically expected to last more than 1 year, that attendance will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. It will not be treated as temporary after the date you determine it will last more than 1 year.

Attendance at school on a temporary basis was formerly defined as attendance on an irregular or short-term basis (generally a matter of days or weeks).

You can file an amended return on Form 1040X, Amended U.S. Individual Income Tax Return, for any year in which you used the former definition of attendance on a temporary basis. However, you generally must file the amended return within 3 years from the time you filed the original return or within 2 years from the time you paid the tax, whichever is later.

Deductible expenses.

If you are regularly employed and go directly from home to school on a temporary basis, you can deduct the round-trip costs of transportation between your home and school. This is true regardless of the location of the school, the distance traveled, or whether you attend school on nonwork days.

Transportation expenses include the actual costs of bus, subway, cab, or other fares, as well as the costs of using your car. Transportation expenses do not include amounts spent for travel, meals, or lodging while you are away from home overnight.

You can deduct expenses for travel, meals (see 50% limit on meals, later), and lodging if:

Travel expenses for qualifying work-related education are treated the same as travel expenses for other employee business purposes. For more information, see Publication 463.

You cannot deduct expenses for personal activities such as sightseeing, visiting, or entertaining.

Mainly personal travel.

If your travel away from home is mainly personal, you cannot deduct all of your expenses for travel, meals, and lodging. You can deduct only your expenses for lodging and 50% of your expenses for meals during the time you attend the qualified educational activities.

Whether a trip's purpose is mainly personal or educational depends upon the facts and circumstances. An important factor is the comparison of time spent on personal activities with time spent on educational activities. If you spend more time on personal activities, the trip is considered mainly educational only if you can show a substantial nonpersonal reason for traveling to a particular location.

Example 1.

John works in Newark, New Jersey. He traveled to Chicago to take a deductible 1-week course at the request of his employer. His main reason for going to Chicago was to take the course.

While there, he took a sightseeing trip, entertained some friends, and took a side trip to Pleasantville for a day.

Since the trip was mainly for business, he can deduct his round-trip airfare to Chicago. He cannot deduct his transportation expenses of going to Pleasantville. He can deduct only the meals (subject to the 50% limit) and lodging connected with his educational activities.

Example 2.

Sue works in Boston. She went to a university in Michigan to take a course for work. The course is qualifying education.

She took one course, which is one-fourth of a full course load of study. She spent the rest of the time on personal activities. Her reasons for taking the course in Michigan were all personal.

Her trip is mainly personal because three-fourths of her time is considered personal time. She cannot deduct the cost of her round-trip train ticket to Michigan. She can deduct one-fourth of the meals (subject to the 50% limit) and lodging costs for the time she attended the university.

Cruises and conventions.

Certain cruises and conventions offer seminars or courses as part of their itinerary. Even if the seminars or courses are work related, your deduction for travel may be limited. This applies to:

Travel by ocean liner, cruise ship, or other form of luxury water transportation, and
Conventions outside the North American area.

For a discussion of the limits on travel expense deductions that apply to cruises and conventions, see Luxury Water Travel and Conventions in Publication 463.

You cannot deduct the cost of travel as a form of education even if it is directly related to your duties in your work or business.

The following discussions explain how to treat the costs of qualifying education that are related to tax-exempt or excluded income from scholarships, veterans' educational assistance, and the Education Savings Bond Program.

If you receive a tax-exempt scholarship, you must subtract the amount of the scholarship from the cost of your qualifying education.

Part of tuition qualifies.

If only part of your tuition is for qualifying education, you subtract only part of the tax-exempt scholarship from the cost of your qualifying education.

Example.

Your total tuition is $8,000. The tuition for the courses that are qualifying education is $3,200. Your tax-exempt scholarship is $6,000. To determine the part of the scholarship that must be subtracted from the cost of your qualifying education, multiply the scholarship ($6,000) by a fraction. The numerator (top number) of the fraction is the tuition for qualifying education ($3,200), and the denominator (bottom number) is the total tuition ($8,000).

	$6,000	×	$3,200	=	$2,400
			$8,000

The result, $2,400, is the amount of the scholarship you must subtract from the cost of your qualifying education. You can include only $800 ($3,200 - $2,400) as deductible educational expenses.

Any educational assistance payment you receive from the Department of Veterans Affairs (VA) is tax exempt. This includes payments for living expenses.

VA programs that pay educational expenses only.

If you receive payments under a VA program that pays only for educational expenses, such as tuition, books, and similar expenses, you must subtract the part of the VA payment that applies to qualifying education from the cost of your qualifying education.

Example.

Your tuition is $1,000 and all classes are qualifying education. You receive a $780 educational assistance payment from the VA that is solely for educational expenses. You can include only $220 ($1,000 - $780) as deductible educational expenses.

VA programs that pay living expenses and educational expenses.

If you receive payments under a VA program that pays for both living expenses and educational expenses, you must subtract from the cost of your qualifying education only the part of the VA payment that applies to educational expenses for qualifying education.

Generally, 50% of the VA payments are for subsistence or living expenses. For married veterans, the percentage is higher.

Example.

Your tuition is $1,000 and all classes are qualifying education. You receive a $780 educational assistance payment from the VA. Under this program, $390 of the payment is for living expenses and $390 is for educational expenses. You can include only $610 ($1,000 - $390) as deductible educational expenses.

VA payments used for both qualifying and other education.

If you use a VA payment for educational expenses to pay for both qualifying education and other education, you must subtract only part of the payment from the cost of your qualifying education.

Example.

Your tuition and fees for three courses are $1,500. Only two of the three courses are qualifying education. The two courses cost $1,000. You receive a $780 educational assistance payment from the VA under a program that covers tuition and fees only. The payment does not include any amount for living expenses. To determine the part of the VA payment to subtract, multiply the payment ($780) by a fraction. The numerator (top number) is the cost of the qualifying education ($1,000) and the denominator (bottom number) is the total cost of your education ($1,500).

	$780	×	$1,000	=	$520
			$1,500

The result ($520) is the amount you must subtract from the cost of your qualifying education. You can include $480 ($1,000 - $520) as deductible educational expenses.

You may be able to exclude from your gross income all or part of the interest you received on the redemption of qualified U.S. savings bonds if you pay qualified higher educational expenses during the same year. This exclusion is known as the Education Savings Bond Program.

See chapter 8 of Publication 970 for more information on the Education Savings Bond Program.

How you treat reimbursements depends on the arrangement you have with your employer.

There are two basic types of reimbursement arrangements — accountable plans and nonaccountable plans. You can tell the type of plan you are reimbursed under by the way the reimbursement is reported on your Form W–2, Wage and Tax Statement.

If you are reimbursed under an accountable plan, your employer should not include any reimbursement in your income in box 1 of your Form W–2. To be an accountable plan, your employer's reimbursement arrangement must require you to meet all three of the following rules.

Any part of your reimbursement that does not meet all three rules is considered paid under a nonaccountable plan.

Allocating your reimbursements for meals.

Because your excess meal expenses are subject to the 50% limit, you must figure them separately from your other expenses. If your employer paid you a single amount to cover both meals and other expenses, you must allocate the reimbursement so that you can figure your excess meal expenses separately. You make the allocation as follows.

Divide your meal expenses by your total expenses.
Multiply your total reimbursement by the result from (1). This is the allocated reimbursement for your meal expenses.
Subtract the amount figured in (2) from your total reimbursement. The difference is the allocated reimbursement for your other expenses of qualifying education.

Example.

Your employer paid you an expense allowance of $2,000 under an accountable plan. The allowance was to cover all of your expenses of traveling away from home to take a 2-week training course for work. There was no indication of how much of the reimbursement was for each type of expense. Your actual expenses equal $2,500 ($425 for meals + $700 lodging + $150 transportation expenses + $1,225 for books and tuition).

You must allocate the reimbursement between the $425 meal expenses and the $2,075 other expenses. The allocated reimbursement for meals is $340 and the allocated reimbursement for other expenses is $1,660, figured in the following steps.

You divide $425 (your meal expenses) by $2,500 (your total expenses). The result is .17.
You multiply $2,000 (your reimbursement) by .17. The $340 result is the allocated reimbursement for your meal expenses.
You subtract $340 from $2,000. The $1,660 difference is the allocated reimbursement for your other expenses of qualifying education.

Your excess meal expenses are $85 ($425 - $340) and your excess other expenses are $415 ($2,075 - $1,660). After you apply the 50% limit to your meals, you have an educational expense deduction of $457.50 [($85 × 50%) + $415].

Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay and report the total in box 1 of your Form W–2.

You can deduct your expenses regardless of whether they are more than, less than, or equal to your reimbursement. This is discussed later under Where To Deduct Expenses. An illustrated example of a nonaccountable plan, using Form 2106–EZ, is shown toward the end of this publication.

The following information explains what forms you must use to deduct the cost of your qualifying education as a business expense.

If you are self-employed, you must report the cost of your qualifying work-related education on the appropriate form used to report your business income and expenses (Schedule C, C–EZ, or F). If your educational expenses include expenses for a car or truck, travel, or meals, report them the same way you report other business expenses for those items. See the instructions for the form you file for information on how to complete it.

If you are an employee, you can deduct the cost of qualifying work-related education only if you were not reimbursed by your employer or if the costs exceeded your reimbursement. (Amounts your employer paid under a nonaccountable plan and included in box 1 of your Form W–2 are not considered reimbursements.)

In order to deduct the cost of your qualifying work-related education as a business expense, include the amount with your deduction for any other employee business expenses on line 20 of Schedule A (Form 1040). (Special rules for expenses of certain performing artists and fee-basis officials and for impairment-related work expenses are explained later.) This deduction is subject to the 2%-of-adjusted-gross-income limit that applies to most miscellaneous itemized deductions.

Performing artists and fee-basis officials.

If you are a qualified performing artist, or a state (or local) government official who is paid in whole or in part on a fee basis, you can deduct the cost of your qualifying work-related education as an adjustment to gross income rather than as an itemized deduction.

Include the cost of your qualifying education with any other employee business expenses on line 34 of Form 1040. You do not have to itemize your deductions on Schedule A (Form 1040), and, therefore, the deduction is not subject to the 2%-of-adjusted-gross-income limit. You must complete Form 2106 or 2106–EZ to figure your deduction even if you meet the requirements described earlier under Form not required.

For more information on qualified performing artists, see Publication 463.

Impairment-related work expenses.

If you are disabled and have impairment-related work expenses that are necessary for you to be able to get qualifying work-related education, you can deduct these expenses on line 27 of Schedule A (Form 1040). They are not subject to the 2%-of-adjusted-gross-income limit. To deduct these expenses, you must complete Form 2106 or 2106–EZ even if you meet the requirements described earlier under Form not required.

For more information on impairment-related work expenses, see Publication 463.

If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. This means your employer should not include the benefits with your wages, tips, and other compensation shown in box 1 of your Form W–2. This also means that you do not have to include the benefits on your income tax return.

You must reduce your deductible educational expenses by the amount of any tax-free educational assistance benefits you received for those expenses.

Educational assistance.

Tax-free educational assistance benefits include payments for tuition, fees and similar expenses, books, supplies, and equipment. For courses beginning on or after January 1, 2002, the payments may be for either undergraduate- or graduate-level courses. The payments do not have to be for work-related courses.

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

Meals, lodging, transportation, or tools or supplies (other than textbooks) that you can keep after completing the course of instruction.
Education involving sports, games, or hobbies unless the education has a reasonable relationship to the business of your employer or is required as part of a degree program.

You must keep records as proof of any deduction claimed on your tax return. Generally, you should keep your records for 3 years from the date of filing the tax return and claiming the deduction.

If you are an employee who is reimbursed for expenses and you give your records and documentation to your employer, you do not have to keep duplicate copies of this information. However, you should keep your records for a 3-year period if:

Examples of records to keep.

If any of the above cases apply to you, you must be able to prove that your expenses are deductible. You should keep adequate records or have sufficient evidence that will support your expenses. Estimates or approximations do not qualify as proof of an expense. Some examples of what can be used to help prove your expenses are:

Documents, such as transcripts, course descriptions, catalogs, etc., showing periods of enrollment in educational institutions, principal subjects studied, and descriptions of educational activity.
Canceled checks and receipts to verify amounts you spent for:
1. Tuition and books,
2. Meals and lodging while away from home overnight for educational purposes,
3. Travel and transportation, and
4. Other educational expenses.
Statements from your employer explaining whether the education was necessary for you to keep your job, salary, or status; how the education helped maintain or improve skills needed in your job; how much reimbursement you received; and the type of certificate and subjects taught, if you are a teacher.
Complete information about any scholarship or fellowship grants, including amounts you received during the year.

Victor Jones teaches math at a private high school in North Carolina. He was selected to attend a 3-week math seminar at a university in California. The seminar will improve his skills in his current job and is qualifying education. He was reimbursed for his expenses under his employer's nonaccountable plan, so his reimbursement of $2,100 is included in the wages shown on his Form W–2. Victor will file Form 1040.

Because Victor's reimbursement was included in his income, he files Form 2106–EZ with his tax return. He shows his expenses for the seminar in Part I of the form. He enters $1,650 ($1,050 + $550 + $50) on line 3 to account for his lodging, airfare, and taxi fares. He enters $400 on line 4 for his tuition and books. On the line to the left of line 5, Victor enters $526 for meal expenses. He multiplies that amount by 50% and enters the result, $263, on line 5. On line 6, Victor totals the amounts from lines 3 through 5. He carries the total, $2,313, to line 20 of Schedule A (Form 1040).

Since he does not claim any vehicle expenses, Victor leaves Part II blank. His filled-in form is shown on the next page.

You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. By selecting the method that is best for you, you will have quick and easy access to tax help.

Contacting your Taxpayer Advocate.

If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate.

The Taxpayer Advocate represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels. While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review.

To contact your Taxpayer Advocate:

Call the Taxpayer Advocate at
1–877–777–4778.
Call, write, or fax the Taxpayer Advocate office in your area.
Call 1–800–829–4059 if you are a
TTY/TDD user.

For more information, see Publication 1546, The Taxpayer Advocate Service of the IRS.

Personal computer. With your personal computer and modem, you can access the IRS on the Internet at www.irs.gov. While visiting our web site, you can:

You can also reach us with your computer using File Transfer Protocol at ftp.irs.gov.

TaxFax Service. Using the phone attached to your fax machine, you can receive forms and instructions by calling 703–368–9694. Follow the directions from the prompts. When you order forms, enter the catalog number for the form you need. The items you request will be faxed to you.

For help with transmission problems, call the FedWorld Help Desk at 703–487–4608.

Evaluating the quality of our telephone services. To ensure that IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. One method is for a second IRS representative to sometimes listen in on or record telephone calls. Another is to ask some callers to complete a short survey at the end of the call.

Products. You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Some IRS offices, libraries, grocery stores, copy centers, city and county governments, credit unions, and office supply stores have an extensive collection of products available to print from a CD-ROM or photocopy from reproducible proofs. Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes.
Services. You can walk in to your local IRS office to ask tax questions or get help with a tax problem. Now you can set up an appointment by calling your local IRS office number and, at the prompt, leaving a message requesting Everyday Tax Solutions help. A representative will call you back within 2 business days to schedule an in-person appointment at your convenience.

Mail. You can send your order for forms, instructions, and publications to the Distribution Center nearest to you and receive a response within 10 workdays after your request is received. Find the address that applies to your part of the country.

CD-ROM for tax products. You can order IRS Publication 1796, Federal Tax Products on CD-ROM, and obtain:

The CD-ROM can be purchased from National Technical Information Service (NTIS) by calling 1–877–233–6767 or on the Internet at http://www.irs.gov/cdorders. The first release is available in early January and the final release is available in late February.

CD-ROM for small businesses. IRS Publication 3207, Small Business Resource Guide, is a must for every small business owner or any taxpayer about to start a business. This handy, interactive CD contains all the business tax forms, instructions and publications needed to successfully manage a business. In addition, the CD provides an abundance of other helpful information, such as how to prepare a business plan, finding financing for your business, and much more. The design of the CD makes finding information easy and quick and incorporates file formats and browsers that can be run on virtually any desktop or laptop computer.

It is available in March. You can get a free copy by calling 1-800-829-3676 or by visiting the website at www.irs.gov/smallbiz.

Publication 508Main Contents

Publication 508
Main Contents