Contents

Introduction ........................................ 2

Qualifying Education ......................... 2

Nonqualifying Education ................... 3

What Educational Expenses Are

Deductible? .................................. 4

Transportation Expenses ................ 4

Travel Expenses ............................. 4

Expenses Relating to Tax-Exempt

and Excluded Income .............. 5

How To Report Reimbursements and

Educational Expenses ................ 5

Employer-Provided Educational

Assistance ................................... 6

Recordkeeping ................................... 7

Example—Filled-In Form 2106 .......... 7

Important Changes for

1997

Standard mileage rate. Generally, if you use

your car for transportation to school, you can

deduct 31.5 cents per mile. For more information, see Using Your Car under What Educational Expenses Are Deductible.

Limit on itemized deductions. If your adjusted gross income is more than $121,200

($60,600 if you are married filing separately),

your itemized deductions may be limited. See

the instructions for Form 1040, Schedule A,

line 28.

Employer-provided educational assistance. The exclusion from income of up to

$5,250 of employer-provided educational assistance benefits, which expired for tax years

beginning after May 31, 1997, has been

reinstated retroactively and extended. It will

now expire for courses beginning after May

31, 2000. See Employer-Provided Educational Assistance, later.

Important Changes for

1998

Education incentives. Begining in 1998, a

number of tax breaks will be available to help

you pay for the cost of higher education.

1) HOPE scholarship credit. Generally,

you can claim a credit of up to $1,500

per student for tuition and related expenses for each of the first 2 years of the

student's post-secondary education.

2) Lifetime learning credit. Generally, you

can claim a yearly credit of 20 percent

of up to $5,000 of qualified tuition and

related expenses that you pay for one

or more students. However, you cannot

take the HOPE credit and the lifetime

learning credit for the same student in

the same year. 

3) Student loan interest deduction. Generally, you may deduct up to $1,000 of

Department

of the

Treasury

Internal

Revenue

Service

Publication 508

Cat. No. 15012M

Educational

Expenses

For use in preparing

1997 Returns

Get forms and other information faster and easier by:

 COMPUTER

• World Wide Web ➤ www.irs.ustreas.gov


• FTP ➤ ftp.irs.ustreas.gov

• IRIS at FedWorld ➤ (703) 321-8020

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• From your FAX machine, dial ➤ (703) 368-9694

See How To Get More Information in this publication.
interest paid during 1998 on any qualified education loan. 

For more detailed information on these

items and to see what other education benefits (including the new Education IRA) are

available, get Publication 553, Highlights of

1997 Tax Changes.

Introduction

This publication discusses work-related educational expenses. You may be able to deduct these expenses on your tax return as

business expenses. To deduct these expenses you must:

1) Be working, 

2) Itemize your deductions on Schedule A

(Form 1040) if you are an employee, and

3) Meet the requirements discussed under

Qualifying Education.

Educational expenses that are not work

related, such as costs of sending children to

college, are personal expenses that you cannot deduct.

This publication also explains the exclusion of employer-provided educational assistance benefits.

Useful Items

You may want to see:

 Publication

m 463 Travel, Entertainment, Gift,

and Car Expenses 

m 520 Scholarships and Fellowships 

m 535 Business Expenses 

Form (and Instructions)

m 1040 U.S. Individual Income Tax Return

m 2106 Employee Business Expenses 

m 2106–EZ Unreimbursed Employee Business Expenses 

m Schedule A (Form 1040) Itemized Deductions 

Qualifying Education

You can deduct educational expenses only if

they are for qualifying education. This is education that meets at least one of the following tests:

1) The education is required by your employer or the law to keep your present

salary, status, or job (and serve a business purpose of your employer), or

2) The education maintains or improves

skills needed in your present work.

You can deduct the expenses for qualifying education even if the education could lead

to a degree.

Education that does not qualify. Even if the

education meets one of the tests under

Qualifying Education, it does not qualify if it:

Figure A. Does Your Education Qualify?

Start Here

Yes

No

Is the education needed

to meet the minimum

educational requirements

of your trade or business?

Is the education part of a

study program that can

qualify you in a new trade

or business?

Is the education required

by your employer, or by

law, to keep your present

salary, status, or job?

Does the education

maintain or improve skills

required in doing your

present work?

Your education does not

qualify.

Your education qualifies.

Ä

No

Ä

No

Ä

No

Ä

Ä

Ä

§

¶

¶

Yes

Yes

Yes

1) Is needed to meet the minimum educational requirements of your present trade

or business, or

2) Is part of a program of study that can

qualify you for a new trade or business,

even if you do not plan to enter that trade

or business.

You can use Figure A 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 must be required for you to keep your present salary,

status, or job. It must serve a business purpose of your employer and not be 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 is qualifying only if it maintains or

improves skills required in your present work.

See Education To Maintain or Improve Skills.

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. You take a course

and pay for it yourself. This is qualifying education even if you eventually receive a master's degree and an increase in salary because of this extra education.

Education To Maintain

or Improve Skills

If your education is not required by your employer or a law, it must maintain or improve

skills needed in your work. Education to

maintain or improve skills includes refresher

courses, courses on current developments,

and academic or vocational courses. However, courses you take that are needed to

meet the minimum educational requirements

for your work or to qualify you for a new trade

or business are not qualifying education.

Example. You repair televisions, radios,

and stereo sets for XYZ Store. To keep up

with the latest changes, you take special

courses in radio and stereo service. These

courses maintain and improve skills required

in your work.

Present work. Education that relates to work

you may enter in the future is not qualifying

education. Education that prepares you for a

future occupation includes any education that

keeps you up-to-date for a return to work or

that qualifies you to reenter a job you had in

the past.

Temporary absence. If you stop work for

a year or less and then go back to the same

kind of work, your absence is ordinarily considered temporary. Education during a vacation, temporary leave, or other temporary absence from your job is considered related to

your present job. However, after your temporary absence you must return to the same

kind of work.

Page 2
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. You may even choose to take

a similar job with another employer.

Nonqualifying

Education

You cannot deduct the costs of nonqualifying

education, even if it meets one of the tests

described earlier for qualifying education.

Nonqualifying education is education that:

1) Is needed to meet the minimum educational requirements of your present trade

or business, or

2) Is part of a program of study that can

qualify you for a new trade or business.

Education To Meet

Minimum Requirements

Education needed to meet the minimum educational requirements for your present trade

or business is nonqualifying education. The

minimum education necessary is determined

by:

1) Laws and regulations, 

2) Standards of your profession, trade, or

business, and 

3) Your employer's requirements.

Once you have met the minimum educational requirements that were in effect when

you were hired, you do not have to meet

minimal educational requirements again. This

means that if the minimum requirements

change after you were hired, any education

you need to meet the new requirements is

qualifying education.

CAUTION

! You have not necessarily met the

minimum educational requirements

of your trade or business simply because you are already doing the work.

Example 1. You are a full-time engineering student. You work part time as an

engineer for a firm that will employ you after

you finish college as a full-time engineer. Although your college engineering courses improve your skills in your present job, you have

not met the minimum job requirements for a

full-time engineer. The education is nonqualifying education.

Example 2. You are an accountant and

you have met the minimum educational requirements of your employer. Your employer

later changes the minimum educational requirements and requires you to take college

courses to keep your job. These additional

courses are not minimum requirements because you have already satisfied the initial

minimum requirements. The education is

qualifying education.

However, a new accountant coming into

the firm has to satisfy these new minimum

requirements. The education the new accountant needs to meet the new minimum

requirements would be nonqualifying education.

Requirements for Teachers

This discussion applies to teachers and others employed by educational organizations.

The state or school district usually sets the

minimum educational requirement for teachers. It is the minimum number of college

hours or college degree usually required of a

person hired for that position.

If no requirements exist, you will have met

the minimum educational requirement when

you become a faculty member. You generally

will be considered a faculty member when

one of the following occurs:

1) You have tenure, 

2) Your years of service count toward obtaining tenure, 

3) You have a vote in faculty decisions, or 

4) Your school makes contributions for you

to a retirement plan other than social

security or a similar program. 

Example 1. Your state law requires beginning secondary school teachers to have a

bachelor's degree, including ten 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 may

hire persons with only 3 years of college.

However, to keep their job, 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 ten 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.

Example 2. Assume the same facts as

in Example 1 except that you have a bachelor's degree and only six professional education courses. The additional four education

courses are qualifying education. Although

you do not have all the required courses, you

have already met the minimum educational

requirements.

Example 3. Assume the same facts as

in Example 1 except that you are hired with

only 3 years of college. The courses you take

that lead to a bachelor's degree (including

those in education) are nonqualifying education. They are needed to meet the minimum

educational requirements for employment as

a teacher.

Example 4. You have a bachelor's degree and you work as a temporary instructor

at a university. At the same time, you take

graduate courses toward an advanced degree. The rules of the university state that you

may become a faculty member only if you get

a graduate degree. Also, you may keep your

job as an instructor only as long as you show

satisfactory progress toward getting this degree. You have not met the minimum educational requirements to qualify you as a faculty

member. The graduate courses are nonqualifying education.

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 a new state. This is true even

if you must get additional education to be

certified in the new state. Any additional education you need is qualifying education.

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. You have

already met the minimum requirements for

teaching and have not entered a new trade

or business.

Education That Qualifies

You for a New Trade or

Business

Education that is part of a program of study

that can qualify you for a new trade or business is nonqualifying education. This is true

even if you are not seeking a new job.

If you are an employee, a change of duties

is not a new trade or business if the new duties involve the same general work you did in

your old job.

Example 1. You are an accountant. Your

employer requires you to get a law degree at

your own expense. You register at a law

school for the regular curriculum that leads to

a law degree. Even if you do not intend to

become a lawyer, the education is nonqualifying because the law degree will qualify you

for a new trade or business.

Example 2. You are a general practitioner of medicine. You take a 2–week course

to review developments in several specialized

fields of medicine. The course does not

qualify you for a new profession. It is qualifying education because it maintains or improves skills required in your present profession.

Example 3. While working in the private

practice of psychiatry, you enter a program to

study and train at an accredited

psychoanalytic institute. The program will

lead to qualifying you to practice psychoanalysis. The psychoanalytic training does

not qualify you for a new profession. It is

qualifying education because it maintains or

improves skills required in your present profession.

Bar or CPA Review Course

Review courses to prepare for the bar examination or the certified public accountant

(CPA) examination are nonqualifying education. These are personal expenses that qualify you for a new profession.

Qualifications for Teachers

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.

Page 3
1) Elementary school teacher to secondary

school teacher. 

2) Teacher of one subject, such as biology,

to teacher of another subject, such as

art. 

3) Classroom teacher to guidance counselor. 

4) Classroom teacher to school administrator. 

What Educational

Expenses Are

Deductible?

If your education meets the requirements described earlier under Qualifying Education,

you can generally deduct your educational

expenses. If you are not self-employed, you

must itemize your deductions. However, see

Expenses Relating to Tax-Exempt and Excluded Income, later.

Deductible expenses. The following educational expenses can be deducted.

1) Tuition, books, supplies, lab fees, and

similar items.

2) Certain transportation and travel costs.

3) Other educational expenses, such as

costs of research and typing when writing a paper as part of an educational

program.

Nondeductible expenses. Educational expenses do not include personal or capital expenses. For example, you cannot deduct the

dollar value of vacation time or annual leave

you take to attend classes. This amount is a

personal expense.

Unclaimed reimbursement. If you do not

claim reimbursement that you are entitled to

receive from your employer, you cannot deduct the expenses that apply to the reimbursement. For example, your employer

agrees to pay your educational expenses if

you file a voucher showing your expenses.

You do not file a voucher, and you do not get

reimbursed. Because you did not file a

voucher, you cannot deduct the expenses on

your tax return.

Transportation Expenses

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. A temporary basis is

irregular or short-term attendance, generally

a matter of days or weeks.

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 in going from your home to

school to home. 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 own car.

Transportation expenses do not include

amounts spent for travel, meals, or lodging

while you are away from home overnight.

Example 1. You regularly work in

Camden, New Jersey, and go directly from

work to home. You also attend school every

night for 3 weeks to take a course that improves your job skills. Since you are attending

school on a temporary basis, you can deduct

your daily round-trip transportation expenses

in going between home and school. This is

true regardless of the distance traveled.

Example 2. Assume the same facts as

in Example 1 except that on certain nights you

go directly from work to school and then

home. You can deduct your transportation

expenses from your regular work site to

school and then home.

Example 3. Assume the same facts as

in Example 1 except that you attend the

school for six consecutive Saturdays, nonwork days. Since you are attending school

on a temporary basis, you can deduct your

round-trip transportation expenses in going

between home and school.

Example 4. Assume the same facts as

in Example 1 except that you attend classes

twice a week for one year. Since your attendance in school is not considered temporary, you cannot deduct your transportation

expenses in going between home and school.

If you go directly from work to school, you can

deduct the one-way transportation expenses

of going from work to school. If you go from

work to home to school and return home, your

transportation expenses cannot be more than

if you had gone directly from work to school.

Using your car. If you use your car for

transportation to school, you can deduct your

actual expenses or use the standard mileage

rate to figure the amount you can deduct. The

standard mileage rate for 1997 is 31.5 cents

per mile. Whichever method you use, you

may also deduct parking fees and tolls. See

Publication 463 for information on deducting

your actual expenses of using a car.

Travel Expenses

You can deduct expenses for travel, meals

(subject to the 50% limit), and lodging if:

1) You travel overnight to obtain qualified

education, and

2) The main purpose of the trip is to attend

a work-related course or seminar.

Travel expenses for qualifying education

are treated the same as travel expenses for

other employee business purposes. For more

information, see Publication 463.

CAUTION

! 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. However, during the time you

attend the qualified educational activities, you

can deduct your expenses for lodging and

50% of your expenses for meals.

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 one-week course at the request

of his employer. 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, but

he cannot deduct his transportation expenses

of going to Pleasantville. He can deduct only

the meals and lodging connected with his

educational activities.

Example 2. Sue works in Boston. She

went to a university in Michigan to take a

qualifying course for work. 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 trip is mainly personal because three-fourths of her time is

considered personal time and her reasons for

taking the course in Michigan were all personal. 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.

Example 3. Dave works in Nashville and

recently traveled to California to take a

deductible 2-week seminar. While there, he

spent an extra 8 weeks on personal activities.

The facts, including the extra 8-week stay,

show that his main purpose was to take a

vacation. He cannot deduct his round-trip

airfare or his meals and lodging for the 8

weeks. He can deduct only his expenses for

meals and lodging for the 2 weeks he attended the seminar.

Cruises and conventions. Certain cruises

and conventions offer seminars or courses

as part of their itinerary. Even if these are

work related, your deduction for travel may

be limited. This applies to:

1) Travel by ocean liner, cruise ship, or

other form of luxury water transportation,

and

2) 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.

Meal Expenses

If your educational expenses qualify for deduction, you can deduct the cost of meals that

qualify as travel expenses.

50% limit. You can deduct only 50% of your

qualifying business-related meals if you were

not reimbursed by your employer. This includes meals while traveling away from home

to obtain your education.

Employees must use Form 2106–EZ or

2106 to apply the 50% limit. See the instructions for Form 2106–EZ or 2106 to figure

the 50% limit.

Page 4
Travel as Education

You cannot deduct the cost of travel that is a

form of education if it is even directly related

to your duties in your work or business.

Example. You are a French language

teacher. While on sabbatical leave granted for

travel, you traveled through France to improve your knowledge of the French language. You chose your itinerary and most of

your activities to improve your French language skills. You cannot deduct your travel

expenses as educational expenses. This is

true even if you spent most of your time

learning French by visiting French schools

and families, attending movies or plays, and

engaging in similar activities.

Expenses Relating to

Tax-Exempt and Excluded

Income

Some educational assistance you receive

may be tax-exempt or excluded income. This

is income you receive that you are not required to report on your tax return.

The following discussions illustrate how to

treat qualified educational expenses that are

related to tax-exempt or excluded income

from several sources: scholarships, veterans'

educational assistance, and the education

savings bond program.

Scholarships

If you receive a tax-exempt scholarship, you

must subtract the amount of the scholarship

from your qualified educational expenses.

Example. Your tuition for qualifying education is $8,000. You receive a tax-exempt

scholarship of $6,000 to help pay the tuition.

You can include only $2,000 ($8,000 −

$6,000) as qualified educational expenses.

Part of scholarship is tax exempt. If only

part of your scholarship is tax exempt, you

subtract only the tax-exempt part from your

qualified educational expenses.

Example. Your tuition for qualifying education is $8,000. You receive a $6,000

scholarship of which $4,000 is tax exempt

and $2,000 is taxable. You can include only

$4,000 ($8,000 − $4,000) as qualified educational expenses.

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 qualified educational expenses.

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

qualified educational expenses, multiply the

scholarship ($6,000) by a fraction.

The top number of the fraction is the tuition for qualifying education, $3,200, and the

bottom number is the total tuition, $8,000. The

result, $2,400, is the amount of the scholarship you must subtract from your qualified

educational expenses. You can include $800

($3,200 − $2,400) as qualified educational

expenses.

More information. For more information on

scholarships, see Publication 520.

Veterans

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 your qualified educational expenses.

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 qualified 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 only the educational expense part of the VA payment that applies to

qualifying education from your qualified educational expenses.

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 $610

($1,000 − $390) as qualified educational expenses.

VA payments used for both qualifying and

nonqualifying education. If you use a VA

payment for educational expenses to pay for

both qualifying and nonqualifying education,

you must subtract only part of the payment

from qualified educational expenses. To find

out what part of the VA payment to subtract,

multiply the VA payment by a fraction. The

numerator (top number) is the cost of the

qualifying education. The denominator (bottom number) is the total cost of your qualifying

and nonqualifying 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. Since two-thirds

($1,000/$1,500) of the total expenses are for

qualifying education, subtract two-thirds of the

VA payment (2/3 × $780 = $520) from the

$1,000 cost of the qualifying education. You

can include $480 ($1,000 − $520) as qualified

educational expenses.

Education Savings

Bond Program

You may be able to exclude from income all

or part of the interest you received on the redemption of qualified Series EE U.S. Savings

Bonds during the year if you pay qualified

higher educational expenses during the same

year. This exclusion is known as the Education Savings Bond Program. If you excluded

interest under the Education Savings Bond

Program, you must subtract the excluded interest from your qualified educational expenses. See chapter 1 in Publication 550,

Investment Income and Expenses, for more

information on excluding the savings bond

interest.

How To Report

Reimbursements

and Educational

Expenses

This section explains how to treat any reimbursements you received for educational

expenses and where to deduct your educational expenses.

If you are self-employed, you can skip the

sections on reimbursements and go to the

rules for reporting your deduction. Those

rules are explained later under Where To

Deduct Expenses.

If you are an employee, you must take into

account any reimbursement you receive. How

you treat the reimbursement is explained

next.

How To Treat

Reimbursements

How you treat any reimbursements you receive depends on the arrangement you have

with your employer.

No separate reimbursement. If you are paid

a salary or commission with the understanding that you will pay your own expenses, then

you are not reimbursed or given an allowance

for your expenses. All of your salary or commission is included on Form W–2 and must

be reported as income.

Types of reimbursement arrangements.

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.

Accountable Plans

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 the following rules:

1) Your expenses must be business related, 

2) You must adequately account to your

employer within a reasonable period of

time, and 

3) You must return any excess reimbursement or allowance within a reasonable

period of time.

Any part of your reimbursement that does not

meet one of these three rules is considered

paid under a nonaccountable plan.

Expenses equal reimbursement. If your

expenses equal your reimbursement, you do

not complete Form 2106 or Form 2106–EZ.

Page 5
Because your expenses and reimbursements

are equal, you do not have a deduction.

Excess expenses. If your expenses are

more than your reimbursement, you can deduct your excess expenses. This is discussed

later under Where To Deduct Expenses.

Allocating your reimbursements for meals.

Because your excess meal expenses are

subject to the 50% deduction limit, you must

figure them separately from other expenses.

If your employer paid you a single amount to

cover both meals and other expenses, you

must allocate the reimbursement as follows:

1) Divide your meal expenses by your total

expenses. 

2) Multiply your total reimbursement by the

result from (1). This is the allocated reimbursement for your meal expenses. 

3) Subtract the amount figured in (2) from

your total reimbursement. The difference

is the allocated reimbursement for your

other qualified educational expenses. 

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 allocate the reimbursement between

the meal expenses and other expenses. The

allocated reimbursement for meals is $340

and the allocated reimbursement for other

expenses is $1,660, figured in the following

steps.

1) You divide $425 (your meal expenses)

by $2,500 (your total expenses). The

result is .17.

2) You multiply $2,000 (your reimbursement) by .17. The $340 result is the allocated reimbursement for your meal

expenses.

3) You subtract $340 from $2,000. The

$1,660 difference is the allocated reimbursement for your other qualified educational expenses.

Nonaccountable Plans

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 example of a filled-in Form 2106

illustrating a nonaccountable plan is shown

later.

Reimbursements for nondeductible expenses. Reimbursements you received for

nondeductible expenses are treated as paid

under a nonaccountable plan. You must include them in your income. For example, you

must include in your income reimbursements

your employer gave you for expenses of education that:

1) You need to meet the minimum educational requirements for your job, or

2) Are part of a program of study that can

qualify you for a new trade or business.

Where To Deduct Expenses

Self-employed persons and employees report

their educational expenses differently.

The following information explains what

forms you must use to deduct your qualified

educational expenses.

Self-Employed Persons

If you are self-employed, you must report your

qualified educational expenses on the appropriate form used to report your business income and expenses (Schedule C, Schedule

C-EZ, or Schedule F).

For example, if you use Schedule C, list

and total your educational expenses for tuition, books, laboratory fees, and similar items

in Part V and enter the total on line 27. Include educational expenses that are car and

truck expenses on line 10. Include your travel

expenses on line 24a. Include your meals on

line 24b. For more information, see the instructions for the form that you file.

Employees

If you are an employee, you can deduct

qualified educational expenses only if they

were not reimbursed by your employer or did

not exceed your reimbursement. (Amounts

your employer paid under a nonaccountable

plan and included in box 1 of your Form W-2

are not considered reimbursements.)

Include your qualified educational expenses with your deduction for any other

employee business expenses on line 20 of

Schedule A (Form 1040). (A special rule for

certain performing artists is explained later.)

This deduction is subject to the

2%-of-adjusted-gross-income limit that applies to most miscellaneous itemized deductions.

Form 2106 or Form 2106–EZ. To figure your

deduction for employee business expenses,

including qualified educational expenses, you

generally must complete Form 2106 or Form

2106–EZ.

Form not required. Do not complete either Form 2106 or Form 2106–EZ if:

• You were not reimbursed for any of your

expenses, and

• You are not claiming travel, transportation, or meal expenses.

If you meet both these requirements, enter

the expenses directly on line 20 of Schedule

A. (A special rule for certain performing artists

is explained later.)

Using Form 2106–EZ. This form is

shorter and easier to use than Form 2106.

Generally, you can use this form if:

• You were not reimbursed for any of your

expenses, and 

• You are claiming vehicle expenses and

you are using the standard mileage rate.

If you do not meet both these requirements, use Form 2106.

Performing artists. If you are a qualified

performing artist, include your qualified educational expenses with any other employee

business expenses on Form 1040, line 31.

You do not have to itemize your deductions

on Schedule A (Form 1040), and 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 enable you to get qualifying education, 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 impairmentrelated work expenses, see Publication 463.

Employer-Provided

Educational

Assistance

If you received educational assistance benefits from your employer, all or part of the

benefits may be tax exempt.

You can exclude up to $5,250 of the benefits from income if you received them under

a qualified educational assistance program.

Your employer can tell you if the program is

a qualified program. The education does not

have to be work related for the benefits to be

excluded.

The exclusion, which previously applied

only to benefits you received in tax years beginning before June 1, 1997, for courses that

began before July 1, 1997, has been reinstated retroactively and extended. It now applies to benefits you receive for courses that

begin before June 1, 2000. However, the exclusion does not apply to benefits for graduate level courses (discussed later) that began

after June 30, 1996.

CAUTION

! If you received more than $5,250 of

benefits for the year, the amount over

$5,250 is taxable and must be included in your income, unless it qualifies as

a working condition fringe benefit. See

Excludable fringe benefit, later.

Educational assistance benefits. Educational assistance benefits include payments

by your employer for tuition, fees and similar

expenses, books, supplies, and equipment.

It does not include payments for meals,

lodging, transportation, or tools or supplies

(other than textbooks) that you can keep after

completing the course of instruction. It does

not include payments for education involving

sports, games, or hobbies unless the education:

1) Has a reasonable relationship to the

business of your employer, or

2) Is required as part of a degree program.

Graduate level course. Educational assistance benefits do not include any payments by your employer for a graduate level

course normally taken under a program

leading to a law, business, medical, or other

Page 6
advanced academic or professional degree if

the course began after June 30, 1996.

Expenses paid with benefits. If you received tax-exempt benefits under your employer's qualified educational assistance program, you cannot take a deduction for

qualified educational expenses.

Excludable fringe benefit. If your employer

educational assistance is not excludable under the rules for qualified educational assistance program it is still excludable if it qualifies

as a working condition fringe benefit. A

working condition fringe benefit is a benefit

which, if you had paid for it, you could have

deducted as an employee business expense.

For more information on fringe benefits, see

Publication 535.

Refund Procedures

The $5,250 annual exclusion for employerprovided educational assistance benefits

previously expired for tax years beginning after 1994. In 1996, the exclusion was reinstated retroactively and extended through tax

years beginning before June 1, 1997, for

courses beginning before July 1, 1997.

Therefore, you are entitled to a refund of any

income, social security, and Medicare taxes

you paid on excludable benefits for 1995. You

are also entitled to a refund of any social security and Medicare taxes you paid on these

benefits for 1996.

On August 5, 1997, the exclusion was

again reinstated retroactively and extended.

Therefore, you are entitled to a refund of any

social security and Medicare taxes you paid

on these benefits for 1997.

Income tax refund. You are entitled to an

income tax refund for 1995 if excludable

benefits were included with your wages on

your Form W-2. To get your refund, you need

a Form W-2c from your employer showing the

corrected wages for 1995. 

Claim your refund by filing Form 1040X,

Amended U.S. Individual Income Tax Return,

with the IRS. To speed up processing of the

Form 1040X, print “IRC 127” in the top margin. Next, enter your name, address, social

security number, and tax year on the Form

1040X. Then sign the form and attach your

Form W-2c. The IRS will figure the refund

based on the W-2c information provided.

CAUTION

! If you exclude employer-provided educational assistance from your gross

income, you cannot deduct educational expenses that were paid for by that

assistance. If you claimed a deduction for

educational expenses on your original return,

you need to make an adjustment.

IRA deduction. If you made nondeductible contributions to your individual retirement

arrangement (IRA) for 1995, your reduced

adjusted gross income due to correction of

your wages may allow you to treat the contributions as deductible. To do this, enter the

corrected nondeductible amount on a Form

8606 and attach it to the Form 1040X.

Social security and Medicare taxes refund.

You are entitled to a refund of any social security and Medicare taxes withheld by your

employer on excludable benefits in 1995,

1996, and 1997. Ask your employer to refund

these taxes.

If you are not able to get a refund of these

taxes from your employer, you can file Form

843 with the IRS. To speed up processing of

the form, print “IRC 127” in the top margin.

Attach a statement from your employer listing

any taxes the employer refunded to you and

any taxes the employer claimed as a refund,

or was authorized by you to claim as a refund.

If you cannot get this statement, you must

make the same statement (to the best of your

knowledge and belief) and explain why you

could not get it from your employer.

Recordkeeping

RECORDS

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 income 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:

1) You claim deductions for expenses that

are more than your reimbursement, 

2) Your employer does not use adequate

accounting procedures to verify expense

accounts, 

3) You are related to your employer, or 

4) Your expenses are reimbursed under a

nonaccountable plan. 

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 tuition and books,

meals and lodging while away from home

overnight for educational purposes, travel

and transportation, and 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 educational expense reimbursement you received, identified by kind of

expense; 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.

Example —

Filled-In Form 2106

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.

His actual expenses for the seminar are

as follows:

Victor files Form 2106 with his tax return.

He shows his expenses for the seminar in

Part I of the form under Step 1. 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 line 5, Victor enters $526 for meal

expenses.

Since his reimbursement was reported as

wages on Form W–2 by his employer, he

leaves Step 2 blank. He carries down the

figures from Step 1 and completes the calculations required for Step 3. The filled-in form

is shown on the next page.

Lodging ........................................................ $1,050

Meals ........................................................... 526

Airfare .......................................................... 550

Taxi fares ..................................................... 50

Tuition and books ........................................ 400

Total Expenses $2,576

Page 7
Victor Jones 123 00 4321 Teaching

1,650

400

2,050

526

526

2,050

2,050

526

263

2,313

OMB No. 1545-0139 Employee Business Expenses Form 2106

© See separate instructions.

Department of the Treasury

Internal Revenue Service © Attach to Form 1040.

Attachment

Sequence No. 54

Your name Social security number Occupation in which you incurred expenses

Employee Business Expenses and Reimbursements

Column A Column B

STEP 1 Enter Your Expenses Meals and

Entertainment

Other Than Meals

and Entertainment

1 Vehicle expense from line 22 or line 29 1

2

Parking fees, tolls, and transportation, including train, bus, etc., that

did not involve overnight travel or commuting to and from work

2

Travel expense while away from home overnight, including lodging,

airplane, car rental, etc. Do not include meals and entertainment

3

3

Business expenses not included on lines 1 through 3. Do not

include meals and entertainment

4

4

5 Meals and entertainment expenses (see instructions) 5

Total expenses. In Column A, add lines 1 through 4 and enter the

result. In Column B, enter the amount from line 5

6

6

Note: If you were not reimbursed for any expenses in Step 1, skip line 7 and enter the amount from line 6 on line 8.

STEP 2 Enter Reimbursements Received From Your Employer for Expenses Listed in STEP 1

Enter reimbursements received from your employer that were not

reported to you in box 1 of Form W-2. Include any reimbursements

reported under code “L” in box 13 of your Form W-2 (see

instructions)

7

7

STEP 3 Figure Expenses To Deduct on Schedule A (Form 1040)

8 Subtract line 7 from line 6 8

Note: If both columns of line 8 are zero, stop here. If Column A

is less than zero, report the amount as income on Form

1040, line 7.

9

9

10

In Column A, enter the amount from line 8. In Column B, multiply

the amount on line 8 by 50% (.50). If either column is zero or less,

enter -0- in that column

Add the amounts on line 9 of both columns and enter the total here. Also, enter the total on

Schedule A (Form 1040), line 20. (Fee-basis state or local government officials, qualified

performing artists, and individuals with disabilities: See the instructions for special rules on

where to enter the total.) © 10

For Paperwork Reduction Act Notice, see instructions. Cat. No. 11700N Form 2106 (1997)

Part I

(99)

97

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