When are training costs classed as special expenses and when as income-related expenses?

A distinction is made between training and further training costs as follows:

(1) Training costs are only the expenses for the first professional training and for a first degree as initial training. You can deduct these costs as special expenses, but only up to a maximum amount of 6.000 Euro.

(2) Further training costs are costs for all educational measures taken after the first professional training or after the completion of the first degree. This also includes retraining for a different profession, educational measures in the current profession, further training in a non-practised profession or a second degree. You can fully deduct such costs as income-related expenses. However, it is important that the expenses are related to the profession and that you intend to use the training to generate income.

(3) First or second degree? The costs for the first degree can only be deducted as special expenses to a limited extent. For a second degree, the costs can always be fully deducted as income-related expenses - provided that income is also to be generated. The second degree must not be pursued as a hobby, as some pensioners do, for example.

You can only claim special expenses in the year of payment. So if you are a student with no taxable income, you will not benefit from a deduction for special expenses. However, if you claim the training costs as income-related expenses, you can carry this financial loss forward to your first year of employment in which you earn income. You must then claim your expenses as anticipated income-related expenses.

Mr A and Ms B are students. Mr A has already completed a degree, Ms B has not. Both have no taxable income in the relevant year, but 4.500 Euro in training costs. In the following year, both have similarly paid jobs.

As Ms B is completing a first degree, she can only claim the costs as special expenses in the year in which they are incurred. Without taxable income in that year, she has no tax advantage.

Mr A has completed a second degree. He can declare the training costs in a tax return for the relevant year as income-related expenses and thus incurs a loss. He can also claim this loss in the year after his studies, when he has taxable income.

In the first year after his studies, Mr A therefore pays less tax than Ms B, assuming the same salary.

(2022): When are training costs classed as special expenses and when as income-related expenses?

When study costs are unequivocally deductible as income-related expenses

Expenses for a first degree following secondary school and for initial vocational training outside of an employment training relationship are only partially deductible as special expenses up to 6.000 Euro (§ 10 para. 1 no. 7 and § 9 para. 6 EStG). This regulation is constitutional. In other cases, expenses are fully deductible as business expenses or as pre-employment expenses - or for the self-employed as business expenses - e.g. for job-related training after completing initial training or a first degree, for a second degree or retraining. This also applies to initial vocational training within an employment training relationship (apprenticeship, traineeship, dual study programme), as the training allowance is taxable. In the following cases, study costs are unquestionably fully deductible as business expenses:

• First degree after completing vocational training, e.g. degree after an apprenticeship (BFH ruling of 18.6.2009, BStBl. 2010 II p. 816).
• First degree within a service or employment training relationship, e.g. for officers and career soldiers of the Bundeswehr or within the framework of dual vocational training (dual study programme).
• Second degree after completing a first degree. Provided the degree is sufficiently related to future income from the intended occupation and is not pursued out of purely private interest.
• University degree after completing a degree at a university of applied sciences or after studying at a teacher training college or art college.
• If two or more degree programmes are started in parallel and completed at different times, the second degree programme is considered a second degree after the first degree has been completed, meaning that expenses can be considered as business expenses from this point onwards.
• A professional qualification is considered to be the first state examination, which provides the professional qualification for a preparatory service. Therefore, expenses for the traineeship for lawyers and trainee teachers after the first state examination are fully deductible as business expenses.
• A bachelor's degree is also considered a professional qualification. A subsequent degree programme is a second degree, so these expenses are fully deductible as business expenses. This mainly applies to a master's degree, as this cannot be started without a completed bachelor's or other degree.
• An MBA programme leading to a "Master of Business Administration" generally requires a completed university degree. Therefore, it is a second degree, and the expenses are fully deductible as business expenses.
• Lawyers occasionally complete an additional "Master of Laws" (LL.M) degree at a foreign university after passing the first state examination. Expenses related to this are fully deductible as business expenses, provided they are professionally motivated.
• A doctorate or doctoral studies are generally undertaken after completing a first degree. Therefore, the expenses for this are fully deductible as business expenses, provided there is a professional connection. The costs for a doctorate are even considered as business expenses if, in individual cases, it is carried out without a prior professional qualification.

If you change your degree programme without completing the initially started course, e.g. from law to medicine, the first degree is not considered completed. Consequently, the new degree programme is not a second degree, and the expenses for it are only deductible as special expenses.

(2022): When study costs are unequivocally deductible as income-related expenses

First degree: What are the chances of a full deduction of income-related expenses?

Expenses for the first vocational training and for the first degree as initial training, which are not completed as part of a training employment relationship (e.g. apprenticeship), are currently only deductible as special expenses up to a limit of 6.000 Euro, while the costs for any educational measures after completing vocational training, including a first degree after an apprenticeship, can be fully considered as business expenses (§ 4 para. 9, § 9 para. 6, § 10 para. 1 no. 7 and § 12 no. 5 EStG).

The Federal Constitutional Court has now ruled: The current legal regulation is constitutional. The fact that expenses for initial vocational training or for a first degree as initial training cannot be deducted as business expenses does not violate the Basic Law (BVerfG decision of 19.11.2019, 2 BvL 22/14, 2 BvL 23/14, 2 BvL 24/14, 2 BvL 25/14, 2 BvL 26/14, 2 BvL 27/14, published on 10.1.2020).

(2022): First degree: What are the chances of a full deduction of income-related expenses?

Training costs deductible as business expenses after all?

According to the Federal Fiscal Court, training costs should be deductible as business expenses without limit. Training costs are incurred as a necessary prerequisite for subsequent employment and are therefore business expenses, as they serve to generate taxable income.

Thus, the BFH judges asked the Federal Constitutional Court to clarify whether it is compatible with the Basic Law that, according to § 9 para. 6 EStG, expenses for initial vocational training or for a first degree are not recognised as business expenses (BFH decision of 17.7.2014, VI R 8/12 and VI R 2/12).

Currently, however, the Federal Constitutional Court has finally clarified the highly controversial issue - after more than 5 years(!) - unfortunately to the great disappointment of all those affected and to the delight of the tax authorities: 

The current legal regulation is constitutional. The fact that expenses for initial vocational training or for a first degree cannot be deducted as business expenses does not violate the Basic Law. The constitutional judges thus contradict the highest financial judges! (BVerfG decision of 19.11.2019, 2 BvL 22/14, 2 BvL 23/14, 2 BvL 24/14, 2 BvL 25/14, 2 BvL 26/14, 2 BvL 27/14, published on 10.1.2020).

(2022): Training costs deductible as business expenses after all?

Au pair stay: Language lessons count as vocational training

Many school leavers are drawn abroad for a period of time after their A-levels. As an au pair, they want to improve their language skills and get to know the country and its people through language lessons. In return for free board and lodging, the host family expects help with childcare and household duties. During the stay abroad, parents are only entitled to child benefit or tax allowances if the au pair stay is considered vocational training.

How can an au pair stay be recognised as vocational training? It is necessary for the child to attend theoretical and systematic language lessons for at least 10 hours per week.

Does it have to be exactly 10 hours per week, or might 8.6 hours per week be sufficient?

In addition to pure language lessons, the au pair must also spend time on preparation and follow-up.

Currently, the Federal Fiscal Court has ruled that language lessons of only 8.6 hours per week are not sufficient. The au pair stay abroad is therefore not recognised as vocational training. In this case, neither child benefit nor child allowances were granted. "If the average is less than 10 hours per week, exceptionally individual months may still be considered as vocational training if they are characterised by intensive lessons of significantly more than 10 hours, e.g. due to block lessons or courses" (BFH decision of 14.6.2016, III B 132/15).

Exceptionally, language lessons of less than 10 hours per week may be sufficient for recognition as vocational training. This is the case if the foreign language lessons are a mandatory requirement in a training or examination regulation or if the language lessons prepare for a recognised foreign language test. The two most important English language tests are TOEFL (Test of English as a Foreign Language) or IELTS (International English Language Testing System). (BFH ruling of 15.3.2012, III R 58/08; BFH ruling of 26.10.2012, VI R 102/10).

TOEFL foreign language tests are considered vocational training

Currently, the Saarland Fiscal Court has confirmed that an au pair stay after passing the TOEFL language test can be considered vocational training. However, one condition was particularly emphasised: Even if the acquisition of foreign language skills is verified by a language test - such as TOEFL or IELTS - there must still be a specific connection to vocational training. It is therefore important that studies or other training are started or continued immediately (FG Saarland of 2.2.2014, 2 K 1308/13, rkr.).

(2022): Au pair stay: Language lessons count as vocational training

How can I deduct training costs as special expenses?

Expenses for initial vocational training can be deducted as special expenses up to a maximum amount of 6.000 Euro. This means these costs reduce your taxable income and therefore your tax burden. You may receive a refund of the tax you paid in advance during the year, or a possible additional payment may be reduced.

However, if your training takes place as part of a training employment relationship, such as an apprenticeship or traineeship, a different regulation applies: In this case, you can deduct the costs in full as income-related expenses because the income from the training relationship is taxable. The costs are also deductible as income-related expenses if the training is your second vocational training, i.e. you have already completed initial vocational training.

Whether an educational measure is considered further training or initial training makes a significant difference for tax purposes. For further training, expenses are deductible as income-related expenses without limit. For initial training, you can only deduct the costs to a limited extent as special expenses. If training or studies are merely for general education or a hobby, the costs are not deductible.

For jointly assessed spouses, it does not matter which of the two paid the costs for one spouse's training. If both spouses are in training, each can claim their expenses up to the maximum amount of 6.000 Euro. However, each partner must list their costs individually. A married couple can therefore deduct a maximum of 12.000 Euro of training costs as special expenses. However, one spouse cannot transfer part of their maximum amount to the other if they do not fully utilise it.

(2022): How can I deduct training costs as special expenses?

What counts as vocational training?

Vocational training, the costs of which you can claim as special expenses, primarily includes initial vocational training (excluding training as part of an employment relationship, such as an apprenticeship) or initial studies. Costs for attending general education schools to obtain a secondary school certificate or A-levels are also considered training costs. Any further educational measure after the first professional qualification is further training, which you can deduct as business expenses without limit.

"For the first time" means that no other completed vocational training or university degree preceded the training. If you are already working without a completed training and obtain such a qualification later, this is also initial vocational training, which must be entered under special expenses. Since 2015, the term "initial training" has been legally defined: Proper initial training only exists if the training lasts at least 12 months full-time and ends with an examination. Only after such initial training can the costs for further training be deducted as business expenses (§ 9 Abs. 6 EStG).

Not accepted as vocational training is when you undertake the educational measure only out of interest in general education or as a hobby. For example, if you train as an instructor to teach in a sports club for money or if you take a photography course as a dental technician, this is not considered further training.

(2022): What counts as vocational training?

Which expenses for vocational training can I deduct?

Individuals undergoing vocational training can declare the following expenses as special expenses in their tax return:

• Costs for study and work materials, such as textbooks, stationery, office supplies, copies, calculators, desks, bookshelves, etc.
• Participation fees, such as course, training, study, school, admission, and examination fees
• Costs for study trips, excursions, or class trips
• Travel expenses to the training location with the distance allowance of 30 cents per kilometre
• Trips to private study groups with the business trip allowance of 30 cents per kilometre travelled
• Costs for accommodation and meals away from home if you have your own flat at the training location.
• Interest on the repayment of a training loan, in the year of payment
• Costs for a home office
• Costs for telephone and internet if used for vocational training.

(1) If you use a computer for training, you can deduct the proportional annual depreciation (1/36 of the purchase costs per month) for the duration of the training. Purchase costs up to 800 Euro (net) can be deducted immediately.

(2) Retroactively from 1 January 2021, there is a particularly advantageous new regulation for all types of computers and software: The Federal Ministry of Finance has very generously stipulated that the standard useful life for hardware and software is generally one year. This means: The purchase costs can now always be fully deducted as business expenses or operating costs in the year of purchase, regardless of the amount (BMF letter dated 26 February 2021, IV C 3-S 2190/21/10002:013). In our opinion, this also applies in the area of special expenses.

If you receive tax-free income to support your vocational training, such as BAföG, the expenses will be reduced by this payment. However, this only applies if it is a grant for your training costs that you do not have to repay; grants for living expenses do not have to be deducted. If, on the other hand, you receive a loan that you have to repay, you do not have to deduct this from your training costs.

Students pursuing a second degree can claim accommodation costs and additional meal expenses for a semester abroad or work placement as advertising expenses incurred in advance. This applies, according to a recent ruling by the Federal Fiscal Court, if the study regulations make this mandatory. The students do not establish another first place of work at the other university (BFH ruling of 14 May 2020, VI R 3/18).

Tip: Training costs should always be paid by the trainee themselves, not by the parents.

(2022): Which expenses for vocational training can I deduct?

Home office: What can I deduct?

Whether it's rent, utility costs or cleaning expenses - the costs incurred for a home office can be claimed as income-related expenses or business expenses in your tax return, provided the home office is recognised for tax purposes. The costs for work equipment, such as computers or desks, do not matter in this context, as employees can additionally enter work equipment as income-related expenses and self-employed individuals as business expenses in the tax return.

For apprentices and first-time students, the following also applies: deduct work equipment as special expenses. During further training or a second degree, the costs for work equipment can be deducted as income-related expenses.

Those in training can claim the costs for their home office as special expenses; during further training and a second degree, as income-related expenses. Depending on the size of the home office, you can include the relevant share of your rent and utility costs in your training or further training costs.

For a home office of 25 square metres in a 100 square metre flat, you can declare a quarter of the rent and utility costs in the tax return.

(2022): Home office: What can I deduct?

Can I claim a deduction for my home office?

Expenses for a home office can be deducted as income-related expenses or business expenses if

• no other workplace is available for the professional or business activity, up to 1.250 Euro.
• the home office is the centre of all professional and business activities, with no limit on the amount.

You can claim a home office for tax purposes if "no other workplace" is available for your business or professional activity. In this case, home office costs can be deducted as income-related expenses or business expenses up to a maximum amount of 1.250 Euro. The maximum amount of 1.250 Euro is an annual amount.

The maximum amount is not reduced if the home office is only used for part of the year or if "no other workplace" is available for only a few months. Only a workplace that is suitable for office work and is set up accordingly is considered as "another workplace".

The decisive factor for assessing the "home office as the centre" is that the qualitative focus of the overall activity is in the home office. This is the case if the essential and defining activities for the profession are carried out there. The "centre" is therefore determined by the substantive focus of the professional activity.

This assessment is not primarily based on the duration of use. The time (quantitative) usage is at most an indication: extensive use suggests the centre, while minimal use suggests otherwise. However, the home office can still be the centre even if the time spent there is less than 50% of the total professional and business activity and the external activities predominate in terms of time.

It is important that the work in the home office is so significant for the profession that it defines it. Is "no other workplace" available if employees decided to work from home during the corona crisis for health protection reasons and did not visit their workplace?

Currently, the Federal Government answers this question as follows:

The tax deductibility of expenses for a home office also applies if the taxpayer decided to work from home due to the corona crisis or did not visit their workplace for health protection reasons. Another workplace is only available to the taxpayer if they can actually use it to the required extent and in the required manner.

If the taxpayer cannot actually use their business or professional workplace, e.g. for health protection reasons, no other workplace is available for their business or professional activity. The deduction requirements are to be checked by the relevant state tax authorities in each individual case as part of the tax assessment (BT-Drucksache 19/19321 of 19.5.2020, page 3).

(2022): Can I claim a deduction for my home office?

Legal position on first degree and tax deduction of expenses

An "undergraduate degree" is pursued as initial training, typically immediately after completing secondary education. In this case, study costs can only be deducted as training costs up to a limit of 6.000 Euro as special expenses.

If a first degree is undertaken after completing vocational training, the costs can be deducted in full as - previously incurred - income-related expenses (BFH ruling of 18.6.2009, BStBl. 2010 II p. 816).

If the first degree is part of a training employment relationship, the expenses can be deducted in full as income-related expenses, as the training remuneration is taxable, e.g. vocational academies, dual study programmes.

In the case of a first degree, study costs can be unlimited income-related expenses in the following cases (BMF letter of 22.9.2010, BStBl. 2010 I p. 721):

• If two or more degree programmes are started in parallel and completed at different times, the second degree programme is considered a second degree after the first degree has been completed, meaning that expenses can be considered as income-related expenses from that point onwards.
• A professional qualification is considered to be the first state examination, which provides the professional qualification for a preparatory service. Therefore, expenses for the legal clerkship for lawyers and trainee teachers after the first state examination can be deducted in full as income-related expenses.
• The Bachelor's degree is also considered a professional qualification from a first degree. A subsequent degree programme is a second degree, so these expenses can be deducted in full as income-related expenses. This mainly applies to a Master's degree, as it cannot be undertaken without a completed Bachelor's or other degree.

After many years of uncertainty, the Federal Constitutional Court has declared the current legal regulation to be constitutional. The fact that expenses for initial vocational training or a first degree as initial training cannot be deducted as income-related expenses does not violate the Basic Law (BVerfG decision of 19.11.2019, 2 BvL 22/14, 2 BvL 23/14, 2 BvL 24/14, 2 BvL 25/14, 2 BvL 26/14, 2 BvL 27/14, published on 10.1.2020).

(2022): Legal position on first degree and tax deduction of expenses

Can I claim travel expenses for vocational training?

As part of vocational training, travel expenses were previously deductible - as with off-site work - either with the actual costs or with the business travel allowance of 30 cents per kilometre travelled. The commuting allowance generally did not apply, as this is only relevant for journeys between home and "regular workplace" (until 2013). However, since 2014, for full-time educational measures outside of employment, the educational institution is considered the "first place of work". This also applies to vocational training.

This means: Journeys to the educational institution are now only deductible with the commuting allowance of 30 cents per kilometre (38 cents from the 21st kilometre onwards).

As off-site work can no longer be assumed, meal allowances and accommodation costs are no longer recognised. This applies both in the case of further training for the deduction of income-related expenses and in the case of training for the deduction of special expenses.

You can still claim travel to an educational institution outside the "first place of work" with the business travel allowance of 30 cents per kilometre travelled and also deduct meal allowances, e.g. when attending vocational school.

When is a full-time educational measure or full-time study applicable?

This is the case if it is vocational training or further training and you are not engaged in any employment alongside it. However, employment of up to 20 hours per week, a minor job, or short-term employment is permissible.

The new home office allowance of 5 Euro per day (max. 600 Euro) is also available to those who are studying, training, or undergoing further education and are currently learning more at their home computer than in lectures or classroom-based courses.

(2022): Can I claim travel expenses for vocational training?

What can I deduct for full-time training or education?

Kosten für training or further training can be deductible as income-related expenses, business expenses, or special expenses. Expenses for initial vocational training outside of a training service relationship and for a first degree are - at least according to current legal status - only deductible as special expenses up to a limit of 6,000 Euro.

In other cases, expenses are deductible as income-related expenses or as pre-employment expenses without limit. This also applies to new vocational training after completing an initial training, as well as vocational training within a training service relationship, e.g. apprenticeship, traineeship. Important items include travel, meals, accommodation, and incidental travel expenses.

If, as an employee, you participate in a training measure outside your company as part of your employment, it is considered an off-site activity. You can claim your expenses according to travel cost principles - i.e. travel costs with the business travel allowance, meal allowances, incidental travel expenses, and possibly accommodation costs - as income-related expenses.

This applies to individuals who continue their education or training alongside their job in the evenings and at weekends. This has been the case in the past and continues to apply.

However, the situation is different if you undertake a full-time training measure or full-time study outside your employment:

(1) Until 2013, the educational institution does not become a "regular workplace" if an employee undertakes a long-term training measure and visits the educational institution for over four years. This is also because it is not a company facility of the employer. Travel costs are therefore deductible according to the rules for off-site activities with the business travel allowance and meal allowances (BFH rulings of 9.2.2012, VI R 42/11 and VI R 44/10).

(2) However, since 2014, it is stipulated in the law that for full-time education, the educational institution is the "first place of work" (even though it is not an employer's facility). This means: Journeys are only deductible with the distance allowance, and meal allowances are not considered. This applies both to further training for unlimited income-related expense deduction and to training for limited special expense deduction.

This is the case if it is vocational training and you are not engaged in any employment alongside it. However, the following are permissible:

• employment up to 20 hours per week,
• marginal employment (mini-job), or
• short-term employment (temporary job).

Currently, the Lower Saxony Finance Court has ruled against the tax authorities that part-time study is not a full-time training measure because part-time study is not designed for the student to devote themselves fully to it. Rather, part-time study (here: according to the description of the Fernuniversität Hagen) is designed to be pursued alongside employment. "The understanding of the Federal Ministry of Finance, according to which a course of study or training measure is always a full-time study or full-time training measure in the event of unemployment, cannot be derived from § 9 Abs. 4 Satz 8 EStG" (Lower Saxony Finance Court of 16.2.2022, 4 K 113/20).

(2022): What can I deduct for full-time training or education?

When can I claim a home office for training?

Expenses for initial vocational training and first degree studies not undertaken as part of an employment-based training programme (e.g. apprenticeship) are currently only deductible as special expenses up to a limit of 6.000 Euro. In contrast, the costs for a first degree following an apprenticeship or for further training can be fully deducted as business expenses.

Deductible costs may also include expenses for a home office.

For the tax recognition of a home office, the same rules apply to special expenses as to the deduction of business expenses. A home office is recognised if "no other workplace" is available for the training or if the home office is the "centre of all professional activity", e.g. in the case of distance learning (BMF letter dated 2.3.2011, BStBl. 2011 I p. 195, para. 24).

If a home office is used for both training and professional purposes, the home office costs must be divided according to the proportion of time used, estimated as follows:

• The portion of costs attributable to training is deductible as special expenses, together with other training costs up to 6.000 Euro.
• The portion attributable to professional activity can be deductible as business expenses or operating expenses.
• If you meet the deduction requirement up to 1.250 Euro because "no other workplace is available", this maximum amount must be divided according to the usage ratio between special expenses and business expenses or operating expenses. Only the actual costs up to the respective partial maximum amount are deductible.
• If you meet the deduction requirement for unlimited business expenses because "the home office is the centre of professional activity", the professional usage portion is fully deductible. However, this is rather rare, e.g. in the case of distance learning and freelance secondary employment.

An employed bank clerk is studying law at the distance learning university and writes articles for professional journals on the side. He uses the home office 60% for his studies and 40% for his writing activities. The home office costs amount to 3,200 Euro per year. The costs are deductible up to a total of 1.250 Euro.

This maximum amount must be divided between the two activities according to the usage ratio.

The cost share for the writing activity of 1.280 Euro (40% of 3.200 Euro) can only be deducted as operating expenses up to 500 Euro (40% of 1.250 Euro). The cost share for training of 1.920 Euro (60% of 3,200 Euro) is considered at 750 Euro (60% of 1.250 Euro) and is deductible as special expenses up to the maximum amount of 6.000 Euro, possibly together with other training costs.

Employees and self-employed individuals who work from home and whose workplace does not meet the tax requirements for a home office can claim a flat rate of 5 Euro per day as business expenses or operating expenses. A maximum of 600 Euro per year is deductible. The new home office allowance is also available to those who are studying, training, or undergoing further education and currently spend more time learning at their home computer than in lectures or classroom training.

The allowance is available to those affected regardless of whether they are undertaking initial training, first degree studies, further training, postgraduate studies, or professional development, or whether they are in an employment-based training programme.

In the first two cases, the allowance would be deducted from special expenses, in the other cases from business expenses. This follows analogously from the BMF letter dated 2.3.2011 (BStBl 2011 I p. 195, para. 24), according to which the regulation of § 4 paragraph 5 sentence 1 no. 6b EStG also applies in the area of training, i.e. the deduction of special expenses.

(2022): When can I claim a home office for training?