Important Changes for 2002
Standard mileage rate. Generally,
if you drive your car to and from school, you can deduct 36½ cents per mile. See Transportation
Expenses under What Educational Expenses Are Deductible.
Limit on itemized deductions. If your adjusted gross income for 2002
is more than $137,300 ($68,650 if you are married filing separately), your itemized
deductions may be limited. See the instructions for line 28 of Schedule A (Form 1040).
Employer-provided educational assistance program extended. The
tax-free status of up to $5,250 of employer-provided educational assistance benefits each
year has been extended through 2010. Beginning in 2002, it applies to both undergraduate-
and graduate-level courses.
Important Reminder
Photographs of missing children. The Internal Revenue Service is a
proud partner with the National Center for Missing and Exploited Children. Photographs of
missing children selected by the Center may appear in this publication on pages that would
otherwise be blank. You can help bring these children home by looking at the photographs
and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.
Introduction
This publication discusses work-related educational expenses that you may be able to
deduct as business expenses. It also discusses the exclusion from income of
employer-provided educational assistance benefits.
To be able to deduct work-related educational expenses as business expenses, you must:
- Be working,
- Itemize your deductions on Schedule A (Form 1040) if you are an employee,
- File Schedule C (Form 1040) or Schedule F (Form 1040) if you are self-employed,
and
- Have expenses for education that meet the requirements discussed under Qualifying
Work-Related Education.
Your work-related educational expenses may also qualify you for other tax benefits,
such as the tuition and fees deduction and the Hope and lifetime learning credits. You may
qualify for these other benefits even if you do not meet the requirements listed above.
Also, keep in mind that your work-related educational expenses may qualify you to claim
more than one tax benefit. Generally, you may claim any number of benefits as long as you
use different expenses to figure each one.
Tuition and fees deduction. Because this deduction is an adjustment
to income, you can claim it even if you do not itemize deductions on Schedule A (Form
1040). You can deduct the tuition and fees you pay that are required for higher education
courses, possibly decreasing your 2002 taxable income by up to $3,000. However, you cannot
qualify for this deduction if your income is more than $65,000 ($130,000 for joint
returns). See chapter 4 of Publication 970, Tax Benefits for Education, for more
information.
Hope and lifetime learning credits. These education credits may be
available for tuition and related expenses you pay for higher education. Generally,
credits are more beneficial than deductions because they reduce your tax rather than your
taxable income. The Hope credit could reduce your tax by up to $1,500 in 2002, and the
lifetime learning credit by $1,000. You will not qualify for either of these credits if
your income is more than $51,000 ($102,000 for joint returns). For more information, see
chapters 1 and 2 of Publication 970.
Other tax benefits for education. In addition to the tax benefits
that are available for your work-related educational expenses, there are benefits for
educational expenses that are not work related, such as your child's college tuition and
fees and the interest on your qualified student loan. For information about these and
other tax benefits for education, see Publication 970.
 When you figure
your taxes, you may want to compare these tax benefits so you can choose the method(s)
that give you the lowest tax liability. First, figure your taxes using the expenses as
business deductions. Then, figure your taxes again using only the expenses that qualify
for a Hope or lifetime learning credit. Or you may find that a combination of credit(s)
and deduction(s) gives you the lowest tax.
Comments and suggestions. We
welcome your comments about this publication and your suggestions for future editions.
You can e-mail us while visiting our web site at www.irs.gov.
You can write to us at the following address:
Internal Revenue Service
Tax Forms and Publications
W:CAR:MP:FP
1111 Constitution Ave. NW
Washington, DC 20224
We respond to many letters by telephone. Therefore, it would be helpful if you would
include your daytime phone number, including the area code, in your correspondence.
Useful Items
You may want to see:
Publication
- 463 Travel, Entertainment, Gift,
and Car Expenses
- 520 Scholarships and Fellowships
- 535 Business Expenses
- 970 Tax Benefits for Education
Form (and Instructions)
- 2106 Employee Business Expenses
- 2106-EZ Unreimbursed Employee Business Expenses
- Schedule A (Form 1040) Itemized Deductions
See How To Get Tax Help, near the end of this publication, for information
about getting these publications and forms.
Qualifying Work-Related Education
You can deduct the costs of qualifying work-related education as
business expenses. This is education that meets at least one of the
following two tests.
- The education is required by your employer or the law to keep your
present salary, status, or job. The required education must serve a bona fide business
purpose of your employer.
- The education maintains or improves skills needed in your present work.
However, even if the education meets one or both of the above tests, it is not
qualifying work-related education if it:
- Is needed to meet the minimum educational requirements of your present
trade or business, or
- Is part of a program of study that will qualify you for a new trade or business.
You can deduct the costs of qualifying work-related education as a business expense
even if the education could lead to a degree.
You can use Figure A (see next page) as a quick check to see if your education
qualifies.
Education Required by
Employer or by Law
Once you have met the minimum educational requirements for your job,
your employer or the law may require you to get more education. This additional
education is qualifying education if all three of the following requirements are met.
- It is required for you to keep your present salary, status, or job,
- The requirement serves a business purpose of your employer, and
- The education is not part of a program that will qualify you for a new trade or
business.
When you get more education than your employer or the law requires, the additional
education can be qualifying education only if it maintains or improves skills required in
your present work. See Education To Maintain or Improve Skills, below.
Example. You are a teacher who has satisfied the minimum
requirements for teaching. Your employer requires you to take an additional college course
each year to keep your teaching job. If the courses will not qualify you for a new trade
or business, they are qualifying education even if you eventually receive a master's
degree and an increase in salary because of this extra education.
Education To Maintain
or Improve Skills
If your education is not required by your employer or the law, it can
be qualifying work-related education only if it maintains or improves skills needed
in your present work. This could include refresher courses, courses on current
developments, and academic or vocational courses.
Example. You repair televisions, radios, and stereo systems for
XYZ Store. To keep up with the latest changes, you take special courses in radio and
stereo service. These courses maintain and improve skills required in your work.
Maintaining skills vs. qualifying for new job. Education to maintain
or improve skills needed in your present work is not qualifying education if it will also
qualify you for a new trade or business.
Temporary absence. If you
stop working for a year or less in order to get education to maintain or improve skills
needed in your present work and then return to the same general type of work, your
absence is considered temporary. Education that you get during a temporary absence is
qualifying education if it maintains or improves skills needed in your present work.
Example. You quit your biology research job to become a
full-time biology graduate student for one year. If you return to work in biology research
after completing the courses, the education is related to your present work even if you do
not go back to work with the same employer.
Indefinite absence. If
you stop work for more than a year, your absence from your job is considered indefinite.
Education during an indefinite absence, even if it maintains or improves skills needed in
the work from which you are absent, is considered to qualify you for a new trade or
business. Therefore, it is not qualifying education.
Education To Meet
Minimum Requirements
Education you need to meet the minimum educational requirements for
your present trade or business is not qualifying work-related education. The
minimum educational requirements are determined by:
- Laws and regulations,
- Standards of your profession, trade, or business, and
- Your employer.
Once you have met the minimum educational requirements that were in effect when you
were hired, you do not have to meet any new minimum educational requirements. This means
that if the minimum requirements change after you were hired, any education you need to
meet the new requirements can be qualifying education.
 You have not
necessarily met the minimum educational requirements of your trade or business simply
because you are already doing the work.
Example 1. You are a full-time engineering student. Although you
have not received your degree or certification, you work part time as an engineer for a
firm that will employ you as a full-time engineer after you finish college. Although your
college engineering courses improve your skills in your present job, they are also needed
to meet the minimum job requirements for a full-time engineer. The education is not
qualifying education.
Figure A. Does Your Work-Related Education Qualify?
Example 2. You are an accountant and you have met the minimum
educational requirements of your employer. Your employer later changes the minimum
educational requirements and requires you to take college courses to keep your job. These
additional courses can be qualifying education because you have already satisfied the
minimum requirements that were in effect when you were hired.
Requirements for Teachers
States or school districts usually set the minimum educational
requirements for teachers. The requirement is the college degree or the minimum
number of college hours usually required of a person hired for that position.
If there are no requirements, you will have met the minimum educational requirements
when you become a faculty member. You generally will be considered a faculty member when one
or more of the following occurs.
- You have tenure.
- Your years of service count toward obtaining tenure.
- You have a vote in faculty decisions.
- Your school makes contributions for you to a retirement plan other than social security
or a similar program.
Example 1. The law in your state requires beginning secondary
school teachers to have a bachelor's degree, including 10 professional education courses.
In addition, to keep the job, a teacher must complete a fifth year of training within 10
years from the date of hire. If the employing school certifies to the state Department of
Education that qualified teachers cannot be found, the school can hire persons with only 3
years of college. However, to keep their jobs, these teachers must get a bachelor's degree
and the required professional education courses within 3 years.
Under these facts, the bachelor's degree, whether or not it includes the 10
professional education courses, is considered the minimum educational requirement for
qualification as a teacher in your state.
If you have all the required education except the fifth year, you have met the minimum
educational requirements. The fifth year of training is qualifying education unless it is
part of a program of study that will qualify you for a new trade or business.
Example 2. Assume the same facts as in Example 1 except
that you have a bachelor's degree and only six professional education courses. The
additional four education courses can be qualifying education. Although you do not have
all the required courses, you have already met the minimum educational requirements.
Example 3. Assume the same facts as in Example 1 except
that you are hired with only 3 years of college. The courses you take that lead to a
bachelor's degree (including those in education) are not qualifying education. They are
needed to meet the minimum educational requirements for employment as a teacher.
Example 4. You have a bachelor's degree and you work as a
temporary instructor at a university. At the same time, you take graduate courses toward
an advanced degree. The rules of the university state that you can become a faculty member
only if you get a graduate degree. Also, you can keep your job as an instructor only as
long as you show satisfactory progress toward getting this degree. You have not met the
minimum educational requirements to qualify you as a faculty member. The graduate courses
are not qualifying education.
Certification in a new state. Once
you have met the minimum educational requirements for teachers for your state, you are
considered to have met the minimum educational requirements in all states. This is
true even if you must get additional education to be certified in another state. Any
additional education you need is qualifying education. You have already met the minimum
requirements for teaching. Teaching in another state is not a new trade or business.
Example. You hold a permanent teaching certificate in State A
and are employed as a teacher in that state for several years. You move to State B and are
promptly hired as a teacher. You are required, however, to complete certain prescribed
courses to get a permanent teaching certificate in State B. These additional courses are
qualifying education because the teaching position in State B involves the same general
kind of work for which you were qualified in State A.
Education That
Qualifies You for a
New Trade or Business
Education that is part of a program of study that will qualify you for
a new trade or business is not qualifying work-related education. This is true even
if you do not plan to enter that trade or business.
If you are an employee, a change of duties that involves the same general kind of work
is not a new trade or business.
Example 1. You are an accountant. Your employer requires you to
get a law degree at your own expense. You register at a law school for the regular
curriculum that leads to a law degree. Even if you do not intend to become a lawyer, the
education is not qualifying because the law degree will qualify you for a new trade or
business.
Example 2. You are a general practitioner of medicine. You take
a 2-week course to review developments in several specialized fields of medicine. The
course does not qualify you for a new profession. It is qualifying education because it
maintains or improves skills required in your present profession.
Example 3. While working in the private practice of psychiatry,
you enter a program to study and train at an accredited psychoanalytic institute. The
program will lead to qualifying you to practice psychoanalysis. The psychoanalytic
training does not qualify you for a new profession. It is qualifying education because it
maintains or improves skills required in your present profession.
Bar or CPA Review Course
Review courses to prepare for the bar examination or the certified
public accountant (CPA) examination are not qualifying education. They are part of
a program of study that can qualify you for a new profession.
Teaching and Related Duties
All teaching and related duties are considered the same general kind
of work. A change in duties in any of the following ways is not considered a change
to a new business.
- Elementary school teacher to secondary school teacher.
- Teacher of one subject, such as biology, to teacher of another subject, such as art.
- Classroom teacher to guidance counselor.
- Classroom teacher to school administrator.
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