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Student Finance: Can I deduct costs for pursuing my primary degree?

Many students have to hold down side jobs to support themselves and finance their studies. But what does this mean when it comes to filing your annual tax return as a student? Let us shed some light by outlining what you need to consider.
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Introduction

⚖️ Germany’s Federal Constitutional Court (Bundesverfassungsgericht) issued a verdict for students who earn money on the side at the end of 2019. The court decided that all costs in the context of “initial education”, such as a Bachelor’s degree or a first-time apprenticeship without any prior qualification, are to be considered special expensesIn contrast to income-related expenses, special expenses are various costs that are legally considered to be related to your private life management – for example pension expenses, health insurance, or …
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(Sonderausgaben). However, expenses for your secondary education can be deducted as income-related expensesAny expenses incurred in the acquisition, securing, and maintenance of income – meaning expenses directly connected with your work. They are deducted from your taxable income and therefore reduce your …
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(Werbungskosten).

The difference: Special expenses do not allow any possibility for a loss carryoverAlso known as loss carryover, a loss carryforward allows losses from one tax year to be carried forward into the following year(s). This can reduce taxable income, and therefore your …
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, which means losses during your initial studies (primary degree) cannot be accumulated and taken into account during the next tax year(s). Additionally, the deductible amount for these special expenses is limited to €6,000 per year. However, there is no limit when the costs are deemed to be income-related expenses.

What this means for you: Since only a few students are likely to earn enough to land above the annual tax-free allowance of €10,408 (as of 2020), most students in obtaining their first degree or apprenticeship will not receive any tax relief. You will only be able to deduct your costs as a student as special expenses if you have earned more than the annual tax-free allowance. Read on to find out more. ⬇️

Initial education ≠ first degree!

A particularly confusing factor is probably the term “initial education” itself. This does not necessarily mean your first degree. When trying to determine what initial education includes, remember secondary education is considered any training that starts after you finish your first vocational qualification (apprenticeship, studies -> graduation). This means that if you, for example, already completed vocational training before starting your degree, then your first degree (e.g., Bachelor’s degree, Diploma, etc.) could count as your secondary education as well.

If this is the case for your situation, you can fully deduct your expenses as a student in secondary education as income-related expenses – for example, semester fees, travel expenses to the university or library, and costs for your laptop. Learn more about deductible costs for students here.

What are my options for deducting study costs?

Option 1: Your expenses exceed your income

Even if you cannot deduct the expenses for pursuing your first degree as income-related expenses, you can still declare your study costs in your annual tax return! However, as special expenses, you can deduct a maximum of €6,000 in training costs per year. These reduce the total amount of your income and the taxes you have to pay.

But to benefit from this, you need to have taxable income. If you are not liable to pay taxes, your study costs will not be deductible as special expenses. You can only deduct expenses in the year they are incurred and cannot carry them forward into later tax years.

Option 2: Dual education & apprenticeships

There is an exception that allows you to deduct your initial education costs as income-related expenses: Germany’s dual education system. This means you have opted to pursue dual education, whereby you take university classes while also working and receiving on-the-job training. Since the practical part is administered and paid for by the respective employer, dual students are in an employment relationship, also known as Dienstverhältnis. This can also apply to dual apprenticeships.

If you decided on a dual study program, you could deduct your study costs as income-related expenses without any limit! A loss carryover could also be an option. However, if your regular income as a dual student exceeds your expenses, this won’t be an option.

Bonus: Educational allowance for parents

If your parents support you financially during your studies, they can declare these expenses as an educational allowance in their annual tax return. This tax allowance currently amounts to €924 (as of 2020). However, for your parents to be able to claim the allowance, you must meet the following requirements:

You are of legal age (at least 18 years old)
You are in training – e.g. doing an apprenticeship or studying
You are no longer living in your parents’ household
Your parents are entitled to receive children’s benefitsThe child benefit is a monthly payment from the government that parents in Germany can apply for, regardless of their income – this is meant to ensure that every child’s …
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for you

Need help?

As you can see, there are several different ways to reclaim some tax money while you’re pursuing your primary degree. Hopefully, you now have all the information to file your tax declaration and claim back more money in your tax return. Remember: the average tax refund in Germany is €1,051! If you have any questions about the filing process with Taxfix, we are also always glad to assist you – just get in touch under [email protected].

Sven
by Sven
published on: 18.08.2022
updated on: 12.12.2022

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