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Publication 508
Tax Benefits for Work-Related Education

For use in preparing 2002 Returns


Important Changes for 2002

Standard mileage rate.   Generally, if you drive your car to and from school, you can deduct 36 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:

  1. Be working,
  2. Itemize your deductions on Schedule A (Form 1040) if you are an employee,
  3. File Schedule C (Form 1040) or Schedule F (Form 1040) if you are self-employed, and
  4. 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.

TAXTIP: 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.

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Internal Revenue Service
Tax Forms and Publications
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1111 Constitution Ave. NW
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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.

  1. 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.
  2. 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:

  1. Is needed to meet the minimum educational requirements of your present trade or business, or
  2. 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.

  1. It is required for you to keep your present salary, status, or job,
  2. The requirement serves a business purpose of your employer, and
  3. 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:

  1. Laws and regulations,
  2. Standards of your profession, trade, or business, and
  3. 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.

CAUTION: 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?

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.

  1. You have tenure.
  2. Your years of service count toward obtaining tenure.
  3. You have a vote in faculty decisions.
  4. 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.

  1. Elementary school teacher to secondary school teacher.
  2. Teacher of one subject, such as biology, to teacher of another subject, such as art.
  3. Classroom teacher to guidance counselor.
  4. Classroom teacher to school administrator.

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