Special Tax Considerations for Teachers
Education professionals are afforded a few special tax treatments because of their chosen occupation. These are in addition to applicable tax credits and deductions they may qualify for. Teachers must meet certain qualifications to take advantage of these tax benefits.
Educator Expense Deduction
Supplies or equipment purchased by an educator for the classroom can often be deducted to reduce overall tax burden. This benefit applies to teachers, counselors, principals and education aides. However, to be eligible the educator must work in a location that teaches kindergarten through 12th grade and worked at least 900 hours in a school that has been certified by the state. Private and religious school teachers can also benefit from this tax deduction as long as they qualify under this criteria.
College and other post-secondary instructors cannot use this deduction, and parents who home-school their children are not eligible for this deduction.
Most supplies and equipment expenses qualify for this deduction. The definition according to the IRS is deliberately broad to favor educators who must supplement their classroom supplies by using their own money. It could include anything from books and computers to some athletic equipment as long as the school has not reimbursed the teacher for these expenses. If the school pays the educator back, the expenses cannot be deducted.
It is important to maintain good records of these expenses. Keep receipts and try to keep these expenses separate from your own domestic supplies.
The educator expense deduction is an "above the line" deduction, which means that you can take advantage of this tax deduction even if you do not itemize your deductions.
The deduction does cap at $250 on your federal return. Anything above this amount goes toward a deduction for "unreimbursed job expenses," which is a deduction you can use if you itemize and the expense is greater than two percent of your income.
Continuing Education Expenses
Teachers often must engage in continuing education to maintain their licensure. While employers sometimes cover expenses related to this requirement, not all of them do.
The Lifetime Learning Credit allows you to deduct 20 percent of the costs, up to $10,000, for these courses. If you have to take a course and pay for it yourself, you may be able to obtain a credit for qualifying education expenses, including tuition and fees. These expenses cannot include items like books, activity fees or transportation costs. The credit does phase out for higher income earners.
Q&A: Why is a tax credit more valuable than a tax deduction?
A tax credit reduces your tax burden directly, rather than just lowering your taxable income as a whole. There are two types of tax credits: one is non-refundable and the other is refundable.
A non-refundable tax credit decreases the amount that you owe to the IRS, but it won't help to grow your refund. If you get your tax liability down to $0, any additional non-refundable credits you qualify for will not provide additional refund.
Refundable credits, alternatively, can be refunded, meaning if your tax bill is at $0, these credits will add up to an additional tax refund. Both types of credits will lower your tax bill on a dollar for dollar basis.