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 further 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 without 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 undertaking a first degree, she can only claim the costs as special expenses in the year 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.

(2023): 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 A-levels and for initial vocational training outside of an employment training relationship are only deductible as special expenses up to a limit of 6,000 Euro (§ 10 para. 1 no. 7 and § 9 para. 6 EStG). This regulation is constitutional. In other cases, expenses are deductible as business expenses without limit, either as advertising 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 as part of an employment training relationship (apprenticeship, traineeship, dual study programme), as the training allowance is taxable. In the following cases, study costs are unquestionably deductible as advertising expenses without limit:

• 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 as part of an employment or training relationship, e.g. for officers and career soldiers in the German Armed Forces or as part 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 advertising expenses from this point onwards.
• A degree qualifying for a profession is 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 deductible as advertising expenses without limit.
• A bachelor's or baccalaureate degree is also considered a degree qualifying for a profession. A subsequent degree programme is a second degree, so these expenses are deductible as advertising expenses without limit. 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 advertising expenses.
• Lawyers occasionally complete an additional "Master of Laws" (LL.M) degree at a foreign university after passing the first state examination. Related expenses are fully deductible as advertising expenses if they are professionally motivated.
• A doctorate or doctoral studies are generally undertaken after completing a first degree. Therefore, the expenses are deductible as advertising expenses without limit, provided there is a professional connection. The costs of a doctorate are even considered as advertising expenses if, in individual cases, it is undertaken without a prior degree qualifying for a profession.

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

(2023): When study costs are unequivocally deductible as income-related expenses

Training costs deductible as business expenses after all?

In the opinion of 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 course 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 - after more than 5 years(!) - finally clarified the highly controversial issue - 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 course 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).

(2023): 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 with language lessons and get to know the country and its people. 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 participate in theoretical and systematic language lessons that amount to 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 work.

Currently, the Federal Fiscal Court has ruled that language lessons of only 8.6 hours per week are not sufficient. Therefore, the au pair stay abroad is 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 consideration 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 language tests count as vocational training

Currently, the Saarland Finance 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 language skills is verified by a language test - such as TOEFL or IELTS - there must still be a concrete 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.).

(2023): Au pair stay: Language lessons count as vocational training

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

Expenses for the first vocational training and for the first degree as initial training, which are not completed 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, whereas 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).

(2023): First degree: What are the chances of a full deduction for income-related expenses?

When can a home office be deducted during training?

According to current law, expenses for initial vocational training and first-degree studies outside of a training service relationship (e.g. apprenticeship) are deductible as special expenses up to 6,000 Euro. The costs for a first degree following an apprenticeship or for further training can be fully deducted as business expenses.

This may also include the costs for a home office, but only if it is the centre of all business and professional activities. In this case, either the actual costs of the home office or an annual allowance of 1,260 Euro can be deducted.

Tip: If the home office is used to generate income and is the centre of all business and professional activities, the expenses or the annual allowance should be allocated according to the extent of use and the activities performed there. However, it is also acceptable to allocate the expenses or the annual allowance to a single activity without splitting them.

If the centre of all activities is not in the home office, only a daily allowance of 6 Euro per day can be deducted, up to a maximum of 1,260 Euro. The daily allowance applies per calendar day and does not increase even if different business or professional activities are carried out on one day, for which the deduction conditions are met. The condition for the deduction is that the university or training institution was not visited on that day.

If you deduct the daily allowance as business expenses or work-related expenses for professional activity in your home, an additional deduction as special expenses is not possible.

(2023): When can a home office be deducted during 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 can be deducted 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 you, as an employee, 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 expense 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 so far 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 expenses can therefore be deducted 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 course of 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).

(2023): What can I deduct for full-time training or education?

When are pilot training costs deductible?

The costs of pilot training are only fully deductible as anticipated income-related expenses if a "proper" initial training has been completed beforehand. According to the legal situation from 2015, initial training is only considered "proper" if it lasts at least twelve months full-time and ends with an examination. Only after such initial training can the costs for further training be claimed in full as income-related expenses (§ 9 para. 6 EStG 2015).

Shorter training courses are considered "vocational preparation measures" or "training phases" and not as initial training. However, the costs of such training phases are deductible as special expenses up to 6.000 Euro (§ 10 para. 1 no. 7 EStG).

The Federal Fiscal Court recently ruled that costs for pilot training without prior initial training are not deductible as income-related expenses, even if the taxpayer had previously worked in another profession for many years. Long-term employment does not replace "proper" initial training, and the costs of pilot training can only be deducted as special expenses to a limited extent (BFH ruling of 15.2.2023, VI R 22/21).

Example: A pilot obtained the instrument rating for aircraft in 2016 and the type rating for the Airbus A320 in 2017, but had not completed a proper initial training beforehand. The tax office recognised the costs of pilot training only as special expenses.

According to the judges, the 20-month internship did not meet the requirements for initial training, as there was no structured training and no final examination. The several years of commercial activity before the pilot training was also not considered as initial training.

The classification of the costs of professional pilot training as retraining costs, which would be deductible under § 9 para. 1 sentence 1 EStG, was also rejected. This would contradict the aim of limiting the deduction of income-related expenses.

There is no objective reason why longer employment as a taxi driver or ski instructor should exclude the deduction of income-related expenses, while several years of employment as a DJ/musician should not prevent this (see BT-Drucksache 18/3017, p. 43).

(2023): When are pilot training costs deductible?