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

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

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?

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?