Publication 508 Contents

Cat. No. 15012M

Introduction............................................... 1

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

of the

Treasury Educational Nonqualifying Education......................... 3

What Educational Expenses Are Internal Deductible........................................... 4 Revenue Expenses Transportation Expenses.................... 4 Service Travel Expenses .................................. 4

Expenses Relating to Tax-Exempt

and Excluded Income ................... 5 For use in preparing How To Report Reimbursements and

1995 Educational Expenses...................... 6 Returns

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

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

Important Change for

1995 

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

$5,250 of employer-provided educational assistance under a qualified plan expired on December 31, 1994.

Caution. As this publication was being prepared for print, Congress was considering

changes to the tax law that would extend the

exclusion of employer-provided educational

assistance beyond December 31, 1994. See

Publication 553, Highlights of 1995 Tax

Changes, for any further developments regarding this pending legislation.

Introduction

This publication discusses work-related educational expenses. You may be able to deduct

these expenses on your tax return as business

expenses. In order 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.

You can use Figure A as a quick check to

see if your educational expenses are

deductible.

Other educational expenses, such as

costs of sending children to college, are personal expenses that you cannot deduct.

Useful Items

You may want to see:

Publication

□ 463 Travel, Entertainment, and Gift

Expenses

□ 520 Scholarships and Fellowships

□ 535 Business Expenses

□ 917 Business Use of a Car
Form (and Instructions)

□ 1040 U.S. Individual Income Tax

Return

□ 2106 Employee Business Expenses

□ 2106–EZ Unreimbursed Employee

Business Expenses

□ Schedule A (Form 1040) Itemized

Deductions

□ Schedule C (Form 1040) Profit or

Loss From Business (Sole

Proprietorship)

□ Schedule C-EZ (Form 1040) Net

Profit From Business (Sole

Proprietorship)

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Qualifying Education 

Education must meet certain requirements

before the expenses of that education can be

deducted. If these requirements are met, the

education is qualifying education. You may be

able to deduct the costs of qualifying education even though the education may lead to a

degree. Present work. Your education must relate to Education Required by your present work. Education that will relate to

work you may enter in the future is not qualify- Employer or by Law Requirements. The education must: ing education. Education that prepares you for Once you have met the minimum educational

1) Be required by your employer or the law a future occupation includes any education requirements for your job, your employer or

to keep your present salary, status, or job that keeps you up-to-date for a return to work the law may require you to get more educa-

(and serve a business purpose of your or that qualifies you to reenter a job you had in tion. This additional education must be reemployer), or the past. quired for you to keep your present salary, staTemporary absence. If you stop work for tus, or job. It must serve a business purpose of 2) Maintain or improve skills needed in your a year or less and then go back to the same your employer and not be part of a program present work. kind of work, your absence is ordinarily consid- that will qualify you for a new trade or

ered temporary. Education during a vacation, business. Exception. Even if your education meets temporary leave, or other temporary absence When you take more education than your one of the requirements above, it is not quali- from your job is considered related to your pre- employer or the law requires, the additional fying education if it: sent job. However, after your temporary ab- education is qualifying only if it maintains or

1) Is needed to meet the minimum educa- sence you must return to the same kind of improves skills required in your present work.

tional requirements of your present trade work. See Education to Maintain or Improve Skills,

or business, or later. Example. You quit your biology research

2) Is part of a program of study that can job to become a full-time biology graduate stu- Example. You are a teacher who has satqualify you for a new trade or business, dent for one year. If you return to work in biol- isfied the minimum requirements for teaching.

even if you have no plans to enter that ogy research after completing the courses, Your employer requires you to take an additrade or business. the education is related to your present work. tional college course each year to keep your

You may even choose to take a similar job with teaching job. You take a course and pay for it

See Nonqualifying Education, later. another employer. yourself. This is qualifying education even if

Page 2
you eventually receive a master’s degree and Example 2. You are an accountant and Example 2. Assume the same facts as in

an increase in salary because of this extra you have met the minimum educational re- Example 1. If you have a bachelor’s degree

education. quirements of your employer. Your employer and only six professional education courses,

later changes the minimum educational re- the additional four education courses would

Education to Maintain quirements and requires you to take college be qualifying education. Because a bachelor’s

courses to keep your job. These additional degree is the minimum requirement for qualifi- or Improve Skills courses are not minimum requirements be- cation as a teacher, you have already met the

If your education is not required by your em- cause you already have satisfied the initial minimum requirements, even though you do

ployer or a law, it must maintain or improve minimum requirements. The education is qual- not have all of the required courses.

skills needed in your job to be qualifying edu- ifying education. Example 3. Assume the same facts as in cation. This includes refresher courses, However, a new accountant coming into Example 1. If you are hired with only 3 years of courses on current developments, and aca- the firm would have to satisfy these new mini- college, the courses you take that lead to a demic or vocational courses. However, mum requirements. The education the new ac- bachelor’s degree (including those in educa- courses you take that are needed to meet the countant would need to meet the new mini- tion) are nonqualifying education. They are minimum educational requirements for your mum requirements would be nonqualifying needed to meet the minimum education for job or to qualify you for a new trade or busi- education. employment as a teacher. ness are not qualifying education. See Educa- Example 3. You have your own accounttion to Qualify for a New Trade or Business, Example 4. You have a bachelor’s degree ing business. To improve your skills, you take

later. and you work as a temporary instructor at a several courses in tax accounting. You already university. At the same time, you take gradu- Example. have met the minimum educational require- You repair televisions, radios, ate courses toward an advanced degree. The and stereo sets for XYZ Store. To keep up with ments to be an accountant. These courses imrules of the university state that you may be- the latest changes, you take special courses in prove skills required in your business and are come a faculty member only if you get a gradu- radio and stereo service. These courses main- not part of a program of study that will qualify ate degree. Also, you may keep your job as an tain and improve skills required in your work. you for a new trade or business. These instructor only as long as you show satisfac- courses are qualifying education. tory progress toward getting this degree. You

have not met the minimum educational re- Requirements for Teachers Nonqualifying quirements to qualify you as a faculty member. This discussion applies to teachers and others The graduate courses are nonqualifying Education employed by educational organizations. The education.

minimum educational requirement for teachIf you need education to meet the minimum re- ers is usually set by the state or school district. Certification in a new state. Once you have quirements for a trade or business or if the ed- It is based upon a minimum number of college met the minimum educational requirements ucation is part of a program of study that will hours or a college degree usually required of a for your state, you are considered to have met qualify you for a new trade or business, it is person hired for that position. the minimum educational requirements in a nonqualifying education. You cannot deduct If no requirements exist, you will have met new state, even if you must take additional ed- the costs of nonqualifying education. Educa- the minimum educational requirement when ucation to be certified in the new state. Any ad- tion that is nonqualifying is explained below. you become a faculty member. You generally ditional education you need is qualifying will be considered a faculty member when one education. Education to Meet of the following occurs:

Example. You hold a permanent teaching Minimum Requirements 1) You have tenure, certificate in State A and are employed as a

2) Your years of service count toward ob- Education needed to meet the minimum edu- teacher in that state for several years. You

cational requirements for your present trade or taining tenure, move to State B and are promptly hired as a

business is nonqualifying education. The mini- 3) You have a vote in faculty decisions, or school teacher. You are required, however, to

mum education necessary is determined by: complete certain prescribed courses to get a 4) Your school makes contributions for you permanent teaching certificate in State B. 1) Laws and regulations, to a retirement plan other than social se- These additional courses are qualifying edu- curity or a similar program. 2) Standards of your profession, trade, or cation because the teaching position in State

business, and B involves the same general kind of work for Example 1. Your state law requires begin- which you were qualified in State A. You have 3) Your employer’s requirements. ning secondary school teachers to have a already met the minimum requirements for bachelor’s degree, including ten professional teaching and have not entered a new trade or You have not necessarily met the minimum education courses. In addition, to keep the job, business. educational requirements of your trade or bus- a teacher must complete a fifth year of training iness simply because you are already doing within 10 years from the date of hire. However, the work. if qualified teachers cannot be found, a school Education to Qualify for a

Once you have met the minimum educa- may hire persons with only 3 years of college New Trade or Business tional requirements that were in effect when on the condition that they get the bachelor’s Education that is part of a program of study you were hired, you do not have to satisfy this degree and the required professional educa- that can qualify you for a new trade or busi- rule again. This means that if the minimum re- tion courses within 3 years. quirements change, any education you need ness is nonqualifying education. This is true Under these facts, the bachelor’s degree, even if you are not seeking a new job. to meet the new requirements is qualifying whether it includes the ten professional edu- education. If you are an employee, a change of duties cation courses or not, is considered the mini- is not a new trade or business if the new duties Example 1. You are a full-time engineer- mum educational requirement for qualification involve the same general work you did in your ing student. You work part time as an engineer as a teacher in your state. old job. for a firm that will employ you full time as an If you have all of the required education exengineer after you finish college. Although cept the fifth year, you have met the minimum Example 1. You are an accountant. Your

your college engineering courses improve educational requirements. However, if the fifth employer requires you to get a law degree at

your skills in your present job, you have not year will qualify you for a new trade or busi- your own expense. You register at a law

met the minimum job requirements for a full- ness, it is nonqualifying education. See Educa- school for the regular curriculum that leads to

time engineer. The education is nonqualifying tion to Qualify for a New Trade or Business, a law degree. Even if you do not intend to beeducation. later. come a lawyer, the education is nonqualifying

Page 3
because the law degree will qualify you for a you take to attend classes. This amount is a Example 4. Assume the same facts as in

new trade or business. personal expense. Example 1 except that you attend classes

Unclaimed reimbursement. If you do not twice a week for one year. Since your attend- Example 2. You are a general practitioner claim reimbursement that you are entitled to ance in school is not considered temporary, of medicine. You take a 2–week course to rereceive from your employer, you cannot other- you cannot deduct your transportation ex- view new developments in several specialized

wise deduct the expenses to which that reim- penses in going between home and school. fields of medicine. The course does not qualify

bursement applies. For example, your em- However, if you go directly from work to you for a new profession. It is qualifying educaployer agrees to pay your educational school, you can deduct the one-way transpor- tion because it maintains or improves skills reexpenses if you file a voucher showing your tation expenses of going from work to school. quired in your present profession.

expenses. You do not file a voucher, and you Example 3. While working in the private

practice of psychiatry, you enter a program to do not get reimbursed. Because you did not Travel Expenses file a voucher, you cannot deduct the ex- study and train at an accredited psychoana- You can deduct expenses for travel, meals penses on your tax return. lytic institute. The program will lead to qualify- (subject to the 50% limit), and lodging if you

ing you to practice psychoanalysis. The psy- travel overnight to obtain qualified education

choanalytic training does not qualify you for a Transportation Expenses and the main purpose of the trip is to attend a

new profession. It is qualifying education be- work-related course or seminar. However, you If your education qualifies, you can deduct lo- cause it maintains or improves skills required cannot deduct expenses for personal activi- cal transportation costs of going directly from in your present profession. ties, such as sightseeing, visiting, or work to school. If you are regularly employed entertaining. and go to school on a strictly temporary baBar or CPA Review Course If your travel away from home is mainly per- sis, you can also deduct the costs of returning sonal, you cannot deduct all of your expenses Review courses to prepare for the bar exami- from school to home. A temporary basis is ir- for travel, meals, and lodging. However, during nation or the certified public accountant (CPA) regular or short-term attendance, generally a the time you attend the qualified educational examination are nonqualifying education. matter of days or weeks. activities, you can deduct your expenses for These are personal expenses that qualify you If you are regularly employed and go di- meals (subject to the 50% limit) and lodging. for a new profession. rectly from home to school on a temporary ba- Whether a trip’s purpose is mainly per- sis, you can deduct the round-trip costs of sonal or educational depends upon the facts Qualifications for Teachers transportation in going from your home to and circumstances. An important factor is the school to home. This is true regardless of the All teaching and related duties are considered comparison of the amount of time spent on location of the school, the distance traveled, the same general kind of work. If you change personal activities with the amount of time or whether you attend school on non-work duties in any of the following ways, it is not spent on educational activities. If you spend days. considered a change to a new business. more time on personal activities, the trip is

Transportation expenses include the ac- considered mainly educational only if you can 1) Elementary school teacher to secondary tual costs of bus, subway, cab, or other fares, show a substantial nonpersonal reason for school teacher. as well as the costs of using your own car. traveling to a particular location. 2) Teacher of one subject, such as biology, Transportation expenses do not include Example 1. John works in Newark, New to teacher of another subject, such as art. amounts spent for travel, meals, or lodging Jersey. He traveled to Chicago to take a de- while you are away from home overnight. 3) Classroom teacher to guidance ductible one-week course at the request of his

counselor. employer. While there, he took a sightseeing

Using Your Car trip, entertained some personal friends, and 4) Classroom teacher to school If you use your car for transportation to school, took a side trip to Pleasantville for a day. Since administrator.

you can deduct your actual expenses or use the trip was mainly for business, he can deduct

his round-trip airfare to Chicago, but he cannot the standard mileage rate to figure the amount

you can deduct. The standard mileage rate for deduct his transportation expenses of going to

1995 is 30 cents per mile. If you use either Pleasantville. Only the meals and lodging conWhat Educational method, you may also deduct parking fees and nected with his educational activities can be

claimed as educational expenses. tolls. See Publication 917 for information on Expenses deducting your actual expenses of using a car. Example 2. Sue works in Boston. She

Are Deductible went to a university in Michigan to take a quali- Example 1. You regularly work in Cam- fying course for work. She took one course, den, New Jersey, and go directly from work to If your education meets the requirements de- which is one-fourth of a full course load of your home. You also attend school every night scribed earlier under Qualifying Education, study. She spent the rest of the time on per- for 3 weeks to take a course that improves you can deduct your educational expenses if sonal activities. Her trip is mainly personal be- your job skills. Since you are attending school you itemize your deductions or if you are self- cause three-fourths of her time is considered on a temporary basis, you can deduct your employed. personal time and her reasons for taking the daily round-trip transportation expenses in go- course in Michigan were all personal. She can- ing between home and school. This is true re- Deductible expenses. The following educa- not deduct the cost of the train ticket, but she gardless of the distance traveled. tional expenses can be deducted. can deduct one-fourth of the meals (subject to Example 2. Assume the same facts as in the 50% limit) and lodging costs for the time 1) Tuition, books, supplies, lab fees, and Example 1 except that on certain nights you she attended the university. similar items. go directly from work to school and then Example 3. Dave works in Nashville and 2) Certain transportation and travel costs. home. You can deduct your transportation ex- recently traveled to California to take a de- penses from your regular work site to school 3) Other educational expenses, such as ductible 2-week seminar. While there, he and then home. costs of research and typing when writing spent an extra 8 weeks on personal activities.

a paper as part of an educational Example 3. Assume the same facts as in The facts, including the extra 8-week stay, inprogram. Example 1 except that you attend the school dicate that his main purpose was to take a vafor 6 consecutive Saturdays, non-work days. cation. He cannot deduct his round-trip airfare

Nondeductible expenses. Educational ex- or his meals and lodging for the 8 weeks. He Since you are attending school on a temporary

penses do not include personal or capital ex- can deduct only his expenses for meals and basis, you can deduct your round-trip transpenses. For example, you cannot deduct the portation expenses in going between home lodging for the 2 weeks he attended the

dollar value of vacation time or annual leave and school. seminar.

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Cruises and conventions. Certain cruises The following discussions illustrate how to educational assistance payment from the VA.

and conventions offer seminars or courses as treat educational expenses that are related to You can only include $220 ($1,000 – $780) as

part of their itinerary. Even if these are work- several tax-exempt or excluded sources: qualified educational expenses.

related, your deduction for travel may be lim- scholarships, veterans’ educational assisited. This applies to: tance, and the education savings bond VA programs that pay living expenses and program. 1) Travel by ocean liner, cruise ship, or other educational expenses. If you receive payform of luxury water transportation, and ments under a VA program that pays for both

Scholarships living expenses and educational expenses, 2) Conventions outside the North American

If you receive a tax-exempt scholarship, you you must separate payments for educational area.

must subtract the cost of the scholarship from assistance from those for subsistence. You

your qualified educational expenses. subtract only the educational part of the VA The limits for educational purposes are the payment from your qualified educational same that apply to cruises and conventions for Example 1. Your tuition is $8,000. You reexpenses. other business purposes. These are dis- ceive a tax-exempt scholarship of $6,000 to

cussed under Luxury Water Travel and Con- Generally, 50% of the VA payments are for help pay the tuition. You can include only

ventions in Publication 463. subsistence or living expenses. For married $2,000 ($8,000 – $6,000) as qualified educa- veterans, the percentage will increase. tional expenses.

Meal Expenses Example. Your tuition for qualified educaIf your educational expenses qualify for de- Part of scholarship is tax exempt. If only tional expenses is $1,000. You receive a $780

duction, you can deduct the cost of meals that part of your scholarship is tax exempt, you educational assistance payment from the VA.

qualify as travel expenses. subtract only the expenses related to the tax- Under this program, 50% of the payment is for

exempt part from your qualified educational living expenses. 50% is for educational ex50% limit. expenses. You can deduct only 50% of your penses ($780 × .50 = $390). You can include

qualifying business-related meals if you were Example 2. $610 ($1,000 – $390) as qualified educa- Your tuition is $8,000. You renot reimbursed by your employer. This in- ceive a $6,000 scholarship of which $4,000 is tional expenses.

cludes meals while traveling away from home tax exempt and $2,000 is taxable. You can in- to obtain your education. clude only $4,000 ($8,000 – $4,000) as quali- VA payments used for both qualifying and Employees must use Form 2106 to apply fied educational expenses. nonqualifying education. If you use a VA the 50% limit. See the discussion for Step 3 of payment for both qualifying and nonqualifying Form 2106, under How To Deduct Expenses, Part of tuition qualifies. If only part of your education, you must allocate the payment you to figure the 50% limit on meal expenses. tuition is for qualifying education, you subtract receive. To find out what part of the VA payonly part of the tax-exempt scholarship from ment to subtract from the qualified education, Note. For more information on expenses the qualifying education. multiply the VA payment by a fraction. The nu- for travel, meals, and lodging, see Publication

Example 3. merator (top number) is the cost of the qualify- 463. These expenses for the purpose of edu- Your total tuition is $8,000.

The tuition for the courses that are qualifying ing education. The denominator (bottom num- cation are treated the same as travel expenses for other employee business education totals $3,200. Your tax-exempt ber) is the total of your qualifying and

purposes. scholarship is $6,000. To determine the part of nonqualifying educational expenses.

the scholarship that must be subtracted from Example. Your tuition and fees for three the qualified education, multiply the scholar- Travel as Education courses are $1,500. Only two of the three ship ($6,000) by a fraction. courses are work related (qualifying educa- You cannot deduct the cost of travel that in it- The top number of the fraction is the tuition tion). The two courses cost $1,000. You re- self is a form of education even though the for qualifying education, $3,200, and the bot- ceive a $780 educational assistance payment travel may be directly related to your duties in tom number is the total tuition, $8,000. The re- from the VA under a program that covers tui- your work or business. sult, $2,400, is the amount of the scholarship tion and fees only. The payment did not in- Example. you must subtract from your qualifying educa- You are a French language clude any amount for living expenses. Since tion. You can include $800 ($3,200 – $2,400) teacher. While on sabbatical leave granted for two-thirds ($1,000/$1,500) of the total ex- as a qualified educational expense. travel, you traveled through France to improve penses are qualifying, subtract two-thirds of your knowledge of the French language. You For more information on scholarships, see

Publication 520. the VA payment (2/3 × $780 = $520) from chose your itinerary and most of your activities the $1,000 cost of the two work-related to improve your French language skills. You courses. You can include $480 ($1,000 – cannot deduct your travel expenses as educa- Veterans $520) as qualified educational expenses. tional expenses, even though you spent most Any educational assistance payment you re- of your time visiting French schools and fami- ceive from the Department of Veterans Affairs lies, attending movies or plays, and learning Education Savings (VA) is tax exempt. You must subtract the VA French in similar activities.

payment from your qualified educational Bond Program 

expenses. You may be able to exclude from income all or Expenses Relating to Some VA programs may include payments part of the interest you received on the re- Tax-Exempt and Excluded for subsistence or other personal expenses, demption of qualified Series EE U.S. Savings and these payments are also tax exempt. Income Bonds during the year if you pay qualified

higher educational expenses during the same Some educational assistance you receive may VA programs that pay educational ex- year. This exclusion is known as the Education be tax-exempt or excluded from income. This penses only. If you receive payments under a Savings Bond Program. If you excluded inter- is income you receive that you are not required VA program that pays only for educational ex- to report on your tax return. The rules for de- est under the Education Savings Bond Pro- penses, such as tuition, books, and similar ex- termining whether any item is taxable or not gram, you must subtract the excluded interest penses, you must subtract the VA payment taxable are not discussed here. See Publica- from your qualified educational expenses. See from your qualified educational expenses. tion 525, Taxable and Nontaxable Income, for Chapter 1 in Publication 550, Investment Ininformation on the rules on tax-exempt Example. Your tuition for qualified educa- come and Expenses for more information on

income. tional expenses is $1,000. You receive a $780 excluding the savings bond interest.

Page 5
2106–EZ. You have no deduction since your amount of reimbursement allocated for your

How To Report expenses and reimbursement are equal. meals). The remainder of the reimbursement,

If your expenses are more than your reim- $1,660 ($2,000 – $340), is the amount of the Reimbursements bursement, you can deduct your excess ex- reimbursement allocated for all other

penses. These rules are discussed later under expenses. and Educational How To Deduct Expenses.

Expenses How To Deduct Expenses Nonaccountable plans. Your employer will Self-employed persons and employees report This section explains how to treat any reim- combine the amount of any reimbursement or their educational expenses differently. bursements you received for educational ex- other expense allowance paid to you under a

penses and how to figure your deduction for nonaccountable plan with your wages, salary,

educational expenses. Self-Employed Persons or other compensation and report the total in

If you are an employee, you must take into box 1 of your Form W–2. Self-employed persons must report their eduaccount any reimbursement you receive. How You can deduct your expenses regardless cational expenses on the appropriate form

you treat the reimbursement depends on the of whether they are more than, less than, or used to report their business income and

equal to your reimbursement. These rules are expenses. type of reimbursement arrangement and the

amount of the reimbursement. After you have discussed later under How To Deduct Ex- For example, if you are a sole proprietor or

determined how to treat reimbursements, if penses. An example of a filled-in Form 2106 il- an independent contractor, use Schedule C,

any, you will be able to figure your deduction lustrating a nonaccountable plan is shown Schedule C–EZ, or Schedule F. If you use

later. Schedule C, list and total your educational ex- for expenses of education. How you deduct

and report these expenses on your tax return penses for tuition, books, laboratory fees, and

is discussed later in this section. Reimbursement for similar items in Part V and enter them on line

27. List your car and truck expenses on line If you are self-employed, you can skip the Nondeductible Expenses 10. Travel expenses are entered on line 24a. section on reimbursements. The rules for re- If your employer reimbursed you for expenses Meals and entertainment are entered on line porting your deduction are explained later of education that can qualify you for a new 24b. For more information see the instructions under How To Deduct Expenses. trade or business, you must report the reim- for the form that you file. bursement in your gross income.

How To Treat Employees Reimbursements Amount for Meals To deduct expenses of work-related educa- Included in Reimbursement How you treat any reimbursements you re- tion, you must take into account all of the If your employer paid you one amount under ceive depends on the arrangement you have following.

with your employer. an accountable plan for both meal expenses 1) Your expenses must be for qualified and other qualifying educational expenses education. and it is not clear how much of the reimburse- No separate reimbursement. If you are paid ment is for each type of expense, you must al- 2) You must file Form 1040. a salary or commission with the understanding locate the reimbursement to figure out what that you will pay your own expenses, then you 3) You generally must itemize your deduc- part is for meals and what part is for other ex- are not reimbursed or given an allowance for tions on Schedule A (Form 1040). Your penses. This is necessary to apply the 50% your expenses. All of your salary or commis- educational expenses are deducted on limit to your meal expenses. sion is included on Form W–2 and must be re- line 20 as a miscellaneous deduction. You Allocate your reimbursement as follows. ported as income. can deduct only your expenses that are

1) Divide your meal expenses by your total more than 2% of adjusted gross income

Types of reimbursement arrangements. expenses. from line 31 of Form 1040.

There are two basic types of reimbursement 2) Multiply the result from (1) by your total 4) You may need to complete Form 2106 or

arrangements — accountable plans and reimbursement. This is reimbursement for 2106–EZ if your expenses for education

nonaccountable plans. You can tell the type your meal expenses. include meals and transportation exof plan you are reimbursed under by the way penses or if you receive reimbursement 3) Subtract the amount figured in (2) from the reimbursement is reported on your Form from your employer. your total reimbursement. This is reim- W–2. bursement for your other expenses of

qualifying education. Accountable plans. If you are reimbursed

under an accountable plan, your employer Note: If your adjusted gross income is Example. Your employer paid you an ex- should not include any reimbursement in your more than $114,700 ($57,350 if you are mar- pense allowance of $2,000 for 1995 under an income in box 1 of your Form W–2. To be an ried filing separately), your deduction for item- accountable plan. The allowance was to cover accountable plan, your employer’s reimburse- ized deductions may be limited. See the in- all of your expenses of traveling away from ment arrangement must require you to meet structions for Form 1040. home to take a 2-week training course for the following rules: work. There was no indication of how much of If you are a qualified performing artist,

1) Your expenses must be business-related, the reimbursement was for each type of ex- you may deduct work-related educational expense. You account to your employer for your penses even if you do not itemize your deduc- 2) You must adequately account to your em- expenses and they actually equal $2,500 tions. See Performing Artists in Publication ployer within a reasonable period of time, ($425 for meals + $700 lodging + $150 529, Miscellaneous Deductions, for more and

transportation expenses + $1,225 for books information.

3) You must return any excess reimburse- and tuition).

ment or allowance within a reasonable To allocate expenses, compare meal ex- Form 2106 or Form 2106–EZ. Whether you

period of time. penses with your other expenses of qualified must report your educational expenses on

education (including lodging, transportation, Form 2106 or Form 2106–EZ depends primaAny part of your reimbursement that does not books and tuition while traveling away from rily on the type of expense, the type of reimmeet one of these three rules is considered home). First, divide your meal expenses by bursement or allowance arrangement, and the

paid under a nonaccountable plan. your total expenses ($425 ÷ $2,500). The re- amount of reimbursement. Reimbursement arIf your expenses equal your reimburse- sult is .17. Then multiply .17 by $2,000 (your rangements are explained earlier under How

ment, you do not complete Form 2106 or Form reimbursement). The result is $340 (the To Treat Reimbursements.

Page 6
Employee business expenses, including (Unreimbursed expenses for tuition, books, ● Canceled checks and receipts to verify

educational expenses, are reported on Form and lab fees only can be listed directly on line amounts you spent for tuition and books,

2106 or Form 2106–EZ. Use either form to fig- 20 of Schedule A of Form 1040.) meals and lodging while away from home

ure your allowable travel, transportation, meal, overnight for educational purposes, travel

and other work-related expenses of educa- Schedule A (Form 1040). and transportation, and other educational Unreimbursed edtion. To deduct these expenses, complete ucational expenses, or expenses that are expenses.

Part I of Form 2106 (or Part II of Form 2106– more than the amount reimbursed by your em- EZ) and enter the result on Schedule A (Form ● Statement(s) from your employer explaining ployer, are entered on line 20 of Schedule A 1040) as a miscellaneous itemized deduction. whether the education was necessary for (Form 1040). Generally, you must first use Use Part II of Form 2106 (or Part III of Form you to keep your job, salary, or status; how Form 2106 or Form 2106–EZ to compute the 2106–EZ) only if you have personal vehicle ex- the education helped maintain or improve amount to enter on line 20. To claim these ed- penses. Part I of Form 2106 has three steps: skills needed in your job; how much educa- ucational expenses, you must be able to item- tional expense reimbursement you re- ● Step 1 shows your total business expenses. ize your deductions on Schedule A (Form ceived, identified by kind of expense; type of Lines 1 through 3 are for travel and trans- 1040). (If you’re not sure about whether you certificate and subjects taught, if a teacher. portation expenses that are related to your can itemize, refer to the instructions that come

qualifying education. Line 4 is for educa- with your tax forms.) ● Complete information about any scholarship tional expenses such as tuition and books. You can deduct only the amount of job ex- or fellowship grants, including amounts you Line 5 is for expenses of meals while travel- penses and most other miscellaneous deduc- received during the year. ing away from home to obtain education. tions that is more than 2% of your adjusted

gross income. This 2% limit is applied after all ● Step 2 shows amounts your employer gave other deduction limits have been applied you (your reimbursement) for the expenses (such as the 50% limit on meal expenses, dis- listed in Step 1. These are amounts your

employer did not include as wages in box 1 cussed earlier). Example —

of your Form W–2. Filled-In Form 2106 ● Step 3 figures the expenses to deduct on

Schedule A (Form 1040). If your employer Recordkeeping Victor Jones teaches math at a private high

did not reimburse you, or reimbursed you school in North Carolina. He was selected to

under a nonaccountable plan, for work-re- You must keep records as proof of any deduc- attend a 3-week math seminar at a university

lated meals, your deduction is limited to tion claimed on your tax return. Generally, you in California. Since the seminar will improve

50% of your expenses. This allowable should keep your records for 3 years from the his skills in his current job, it is qualified educadate of filing the income tax return and claim- amount is figured on lines 8 through 10. The tion. He was reimbursed for his expenses

allowable meal expenses are added to your ing the deduction. A return filed early is consid- under his employer’s nonaccountable plan, so ered as filed on the due date. other unreimbursed expenses and the total his reimbursement of $2,100 is shown on his

(line 10) is entered on line 20 of Schedule A If you are an employee who is reimbursed Form W–2.

(Form 1040). for expenses and you give your records and His actual expenses for the seminar are as documentation to your employer, you do not follows:

have to keep duplicate copies of this informa- Exception. You do not have to complete tion. However, you should keep your records Form 2106 if either of the following applies: Lodging ..................................... $1,050 for a 3-year period if: Meals ....................................... 526

1) Your reimbursement not included in box 1 Airfare ....................................... 550 1) You claim deductions for expenses that of Form W–2 is at least as much as your are more than your reimbursement, Taxi fares ................................... 50 deductible expenses. (Do not deduct the Tuition and books ........................... 400 expenses or report the reimbursement as 2) Your employer does not use adequate ac- Total Expenses $2,576 income.) counting procedures to verify expense

accounts, 2) You are not deducting any expenses for Victor files Form 2106 with his tax return. travel, transportation, meals, or entertainment, and you were not reimbursed for 3) You are related to your employer, or He enters $1,650 ($1,050 + $550 + $50) on

line 3 to account for his lodging, airfare, and any expenses (amounts your employer in- 4) Your expenses are reimbursed under a taxi fares. He enters $400 on line 4 for other cluded in box 1 of your W–2 are not con- nonaccountable plan. work-related educational expenses. On line 5, sidered reimbursements). (Unreimbursed

expenses for tuition, books, and lab fees Victor enters $526 for meal expenses. Examples of records to keep. If any of the only can be listed directly on line 20 of Since his reimbursement was reported on above cases apply to you, you must be able to Schedule A (Form 1040).) Form W–2 by his employer, he leaves Step 2 prove that your expenses are deductible. You blank. He carries down the figures from Step 1 should keep adequate records or have suffi- and completes the calculations required for Even if you were not reimbursed, you must cient evidence that will support your ex- Step 3. The completed filled-in form is shown file Form 2106 (or Form 2106–EZ) if you are a penses. Estimates or approximations do not near the end of this publication. qualified performing artist or an individual qualify as proof of an expense. Some exam- with a disability claiming impairment-re- The amount on line 10 ($2,313) is the ples of what types of evidence can be used to lated work expenses. See Publication 529. amount that Victor will enter on line 20 of his help prove your expenses are: Part I of Form 2106–EZ contains general Schedule A (Form 1040). The total from

● Documents such as transcripts, course de- Schedule A is the total of Victor’s itemized de- information about who can use this form. You

do not have to complete Form 2106–EZ if you scriptions, catalog, etc., showing period of ductions; these will be deducted on line 34 of

are not deducting any expenses for travel, enrollment in educational institutions, princi- Form 1040. He will report all of the $2,100

transportation, meals, or entertainment, and pal subjects studied, and description of edu- shown on his Form W–2 as income on line 7 of

you were not reimbursed for any expenses. cational activity. Form 1040.

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