Further training, a second degree, retraining: when the costs are income-related expenses

A trained industrial clerk pays 3,600 € a year in fees for her part-time bachelor's degree. Her colleague, who starts the same degree full time straight after the Abitur, pays the same amount. For tax purposes the two are worlds apart: one deducts income-related expenses, the other special expenses at most. A single circumstance decides it, and it lies before the degree.

The cause decides, not the label

The German Income Tax Act has no separate heading called training costs. Anyone who pays for a course, a seminar or a degree has to fit that expense into one of the existing categories. For employees this is almost always the concept of income-related expenses, Werbungskosten; for traders and freelancers it is the concept of business expenses.

§ 9(1) EStG describes income-related expenses as outlays for acquiring, securing and maintaining income. The word acquiring is the key for education costs: expenses meant to make future income possible can also fall under it. A training that leads to a new occupation serves, in this sense, the acquisition of income.

Sentence 2 of the same provision orders that income-related expenses are deducted under the type of income in which they arose. The training of an employee therefore reduces her employment income, while a landlord's course on tenancy law reduces his income from letting and leasing.

For a business, § 4(4) puts it more briefly: business expenses are outlays caused by the business. A tax adviser attending a professional conference, or a master hairdresser booking a course on a new colouring technique, therefore records these costs as business expenses of the enterprise.

The other side is described in § 12 No. 1. Living costs that the taxpayer's economic or social position brings with it are not deductible, and expressly so even when they are incurred to advance the taxpayer's occupation. A language course for a holiday remains private, even if the language occasionally helps at the office.

The test therefore always runs in the same order. First one asks whether the educational measure is caused by gainful activity, either an existing one or one being aimed at. Only once that is answered yes does the special threshold for vocational training and degrees come into play, which the next section covers.

For the question of cause, the name of the measure is irrelevant. Whether the provider speaks of further training, qualification, course or postgraduate programme changes nothing in the classification. What matters is which activity the measure serves and whether it is a vocational training or a degree within the meaning of subsection 6.

The threshold of subsection 6

§ 9(6) sentence 1 draws a line that advisers need constantly. The costs of one's own vocational training or one's own degree are income-related expenses under only one of two conditions: either the taxpayer has already completed a first training beforehand, or the training takes place within an employment relationship.

The Act treats vocational training and degree courses alike. The brackets state expressly that a first training may be a vocational training or a degree. A completed bachelor's degree therefore opens the deduction of income-related expenses for a later master's, just as a completed apprenticeship opens it for a later degree.

Conversely, someone who goes to university straight after the Abitur, without being trained as an employee alongside, stays in front of this threshold. Their study costs are not income-related expenses, however clearly the degree aims at a later occupation. What remains for them is the capped special-expense deduction explained in the second module.

It matters what subsection 6 does not cover. It speaks of outlays for a vocational training or a degree. A specialist seminar that brings an employee up to date in the occupation she already practises is neither one nor the other; for such costs the general question of cause alone decides.

The threshold therefore mainly affects two groups: people who start their first degree after school, and people who complete a first vocational training outside an employment relationship, for instance at a full-time vocational school. Anyone who already holds a qualification is past the threshold for every further training.

This holds even when the second training has nothing to do with the first. The shop assistant who studies nursing science after her apprenticeship meets the condition of sentence 1 just like the lawyer who takes a specialist-lawyer course. The Act requires a completed first training, not one that matches the subject.

The condition is tested in time. The word beforehand means that the first training must be completed before the costs of the further training arise. Costs incurred while the first training is still running stay on the special-expense side outside an employment relationship, even if the qualification follows a few months later.

What counts as a completed first training

Sentences 2 to 5 of subsection 6 fill in the concept, and they are stricter than one might expect. A vocational training counts as a first training if it is organised, lasts at least twelve months when pursued full time, and is conducted with a final examination. All three features must be present together.

• organised: the training is based on legal or administrative provisions or on internal rules of an education provider
• minimum length: twelve months when pursued full time
• completion: a final examination or, where none is planned, the actual scheduled end
• special case: passing the final examination of a regulated training of at least twelve months without having gone through the training

A training is already organised when an education provider runs it under its own internal rules. Sentence 3 does not require state recognition. A private provider with a fixed curriculum, a set duration and examination regulations can therefore deliver a first training, provided the other features are met.

The minimum length of twelve months refers to full-time training. A three-month weekend course, a first-aid course or a short induction course is not enough, even when it ends with a certificate. Someone holding only such certificates has not yet completed a first training within the meaning of the Act.

The final examination is the third feature. If the training plan provides for no examination, sentence 4 treats the training as completed on its actual scheduled end. Someone who drops out early, on the other hand, has completed nothing, regardless of how long they studied beforehand.

Sentence 5 closes a gap for career changers. Anyone who passes the final examination of a training regulated by legal or administrative provisions and lasting at least twelve months, without having gone through that training, has also completed a first training. The so-called external examination is thus placed on the same footing as the regular route.

For a degree, subsection 6 sets no minimum length of its own. The Act names the degree in the brackets as one of the two forms of a first training; a completed degree is therefore enough for the condition of sentence 1. Whether a qualification has actually been obtained remains decisive here as well.

The second door: training within an employment relationship

The second condition of sentence 1 does without any prior qualification. If the vocational training or degree takes place within an employment relationship, the costs are income-related expenses even for the very first training. The classic case is the apprentice in the dual system who receives pay from the training company.

The same applies to a dual degree, in which students sign a contract with a company and are paid there, and to civil-service trainees whose training forms part of their service relationship. In all these cases the training costs are matched by income that they serve to acquire.

A mini-job alongside a first degree, by contrast, does not turn the degree into one pursued within an employment relationship. The Act requires the training itself to take place within that framework, not merely that an employment exists alongside it. The waitress in her first semester therefore stays on the special-expense side.

In practice the training company usually bears the actual training costs itself. What remains for the apprentice are mostly personal outlays: specialist books, work clothing, trips to the vocational school or a course paid out of pocket. It is exactly these amounts that the apprentice claims as income-related expenses.

The self-employed: the same threshold, one door fewer

For the business sphere, § 4(9) repeats the rule almost word for word. The costs of one's own vocational training or degree are business expenses only if a first training was completed beforehand. For the definition, sentence 2 refers to § 9(6) sentences 2 to 5, that is, to everything the previous section described.

What is missing is striking. The second door of the employment relationship does not exist in the business sphere, and that is consistent: an entrepreneur is not employed by their own business. For them the only question is whether they had completed a first training before the new one began.

For the typical training of a self-employed person the threshold rarely matters. Someone running a business usually already has a qualification, and specialist seminars in the occupation already practised are not vocational training anyway. Subsection 9 becomes relevant for founders without a qualification who start a first degree alongside their activity.

The master craftsman training of a tradeswoman holding a journeyman's certificate, on the other hand, is clear. The journeyman's examination completes an organised training, the master courses are a further training, and their costs are business expenses if she is already self-employed, or income-related expenses if she is still employed.

Which costs count

Once the educational measure is occupationally caused and the threshold is crossed, the question becomes which outlays are deductible in detail. The largest item is usually the course or tuition fees together with the examination fees. They are directly caused by the measure and count in full.

Work equipment comes on top. § 9(1) sentence 3 No. 6 gives tools and typical work clothing as examples; for a training course it is mainly specialist books, learning software, stationery or a specialist tool needed in the course. What matters is that the item actually serves the occupational training.

More expensive equipment is spread over its useful life. No. 7 allows depreciation and declares § 6(2) sentences 1 to 3 applicable accordingly. Under that rule an asset can be deducted in full in the year of purchase if its cost, reduced by any input VAT it contains, does not exceed 800 euros.

Trips to the course venue follow the general rules on travel costs, which a separate course on commuting and the home office covers in detail. One special feature must be noted here: under § 9(4) sentence 8, an education institution attended for full-time study outside an employment relationship counts as the first place of work.

For a full-time student on a second degree, trips to the university are therefore journeys to the first place of work, claimed only with the commuting allowance, not with the higher business-trip rates. Someone studying part time alongside a job is not travelling to their first place of work, and the rules for occupational trips apply.

Courses lasting several days away from home bring accommodation costs and meal allowances with them. Both follow the provisions on work away from home in § 9(1) sentence 3 No. 5a and § 9(4a). The allowances and their reductions are set out in the course on travel costs; this course does not repeat them.

Costs attributable to private living are not deductible. Entertaining fellow students, a private extension of the stay at the seminar venue or a laptop used mainly privately do not count, or count only with their occupational share. The line is drawn once again by § 12 No. 1.

The lump sum as a threshold for every receipt

For employees, proving costs has a catch. § 9a deducts an employee lump sum of 1,230 euros from employment income unless higher income-related expenses are shown. Training costs therefore only take effect to the extent that, together with all other income-related expenses, they exceed this amount.

A one-day event costing 300 euros thus brings an employee with no other such expenses not a cent. A master craftsman course for 6,000 euros, by contrast, exceeds the lump sum by 4,770 euros, even with no other costs. The course on travel costs explains how this threshold works for all such expenses.

The self-employed have no such lump sum. Their business expenses reduce profit from the first euro, which makes training tax-effective for them even at small amounts. The receipts then belong in the bookkeeping or the cash-basis profit statement, not in an annex to the income tax return.