When are training costs deductible 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 vocational 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 undertaken after the first vocational 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? You can only deduct the costs for the first degree as special expenses to a limited extent. For a second degree, however, the costs are always fully deductible 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 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.

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

Study costs: When are they tax deductible?

Expenses for a first degree after school or for initial vocational training outside of an employment-based training programme are only deductible as special expenses up to 6,000 Euro (§ 10 para. 1 no. 7 and § 9 para. 6 EStG). This limitation is constitutional. In other cases, study costs can be deducted without limit as business expenses or, for the self-employed, as operating expenses, for example in the case of a second degree or job-related training after initial training.

In the following cases, study costs are deductible as business expenses without limit:

• First degree after completed vocational training: For example, a degree after an apprenticeship (BFH ruling of 18.6.2009, BStBl. 2010 II p. 816).
• First degree as part of an employment-based training programme: For example, for officers, career soldiers or in dual study programmes.
• Second degree: After completing a first degree, if the degree is job-related.
• Master's degree: As it requires a completed Bachelor's or other degree, it is considered a second degree.
• Doctorate: The costs of a doctorate are deductible as business expenses if they are job-related.
• MBA: An MBA is also a second degree and the costs are fully deductible.
• Parallel degree courses: If a second degree course is continued after completing the first, the costs of the second degree are considered business expenses.
• Referendariat: For lawyers and trainee teachers, expenses after the first state examination are fully deductible.

Special case: Change of course without graduation: If a student changes course without completing the first degree, for example from law to medicine, the new course is not a second degree. In this case, expenses can only be deducted up to 6,000 Euro as special expenses.

Study costs: When are they tax deductible?

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).

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 after their A-levels. As an au pair, they aim to improve their language skills through language classes 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 classes 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 classes, the au pair must also spend time on preparation and follow-up work.

Currently, the Federal Fiscal Court has ruled that language classes of only 8.6 hours per week are not sufficient. Therefore, the au pair stay abroad cannot be 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 classes of significantly more than 10 hours, e.g. due to block classes or courses" (BFH decision of 14.6.2016, III B 132/15).

Exceptionally, language classes of less than 10 hours per week may be sufficient for recognition as vocational training. This is the case if the foreign language classes are a mandatory requirement in a training or examination regulation or if the language classes 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 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 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 important that studies or other training are commenced or continued immediately (FG Saarland of 2.2.2014, 2 K 1308/13, final).

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 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).

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 office or an annual flat rate of 1,260 Euro can be deducted.

Tip: If the home office is used both to generate income and is the centre of all business and professional activities, the expenses or the annual flat rate 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 flat rate 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 income-related expenses for professional activity in your home, an additional deduction as special expenses is not possible.

When can a home office be deducted during training?

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

Costs for training or further education can be deductible as income-related expenses, business expenses, or special expenses. Expenses for initial vocational training outside of an employment training 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 an employment training 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, this 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 people 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 course 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 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 para. 4 sentence 8 EStG" (Lower Saxony Finance Court of 16.2.2022, 4 K 113/20).

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 the costs of 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 partially deducted as special expenses (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 previously completed proper initial training. 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 were also not considered 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).

When are pilot training costs deductible?