Vol. XV, No. 3
March 2007

Educator Expense Deduction

Educator Expense Deduction

If you are an eligible educator, you can deduct from gross income a portion of your qualified expenses.  You can deduct these expenses even if you do not itemize deductions on your tax return.  This deduction is for expenses paid or incurred during the tax year.  You are an eligible educator if, for the tax year, you meet the following requirements:

• You are a kindergarten through grade 12:
• Teacher
• Instructor
• Counselor
• Principal, or
• Aide
• You work at least 900 hours a school year in a school that provides elementary or secondary education, as determined under state law.

Qualified expenses are unreimbursed expenses [otherwise deductible trade or business expenses] you paid or incurred for books, supplies, computer equipment (including related software and services), other equipment, and supplementary materials that you use in the classroom.  For courses in health and physical education, expenses for supplies are qualified expenses only if they are related to athletics.

To be deductible, the qualified expenses must be more than the following amounts for the tax year:

• The interest on qualified U.S. savings bonds that you excluded from income because you paid qualified higher education expenses,
• Any distribution from a qualified tuition program that you excluded from income, or
• Any tax-free withdrawals from your Coverdell Education Savings Account.

Educator Expense Adjustment to Income

On December 20, 2006, the president extended several provisions under the Working Families Tax Relief Act of 2004, Gulf Opportunity Zone Act of 2005 and American Jobs Creation Act of 2005 by passing H.R. 6111, Tax Relief and Health Care Act of 2006.

The recent changes in the law mean the IRS will not be able to process a small percentage of individual tax returns until early February, primarily involving three tax deductions – the state and local sales tax, higher education tuition and fees, and educator expenses.  IRS e-file and Free File tax software has been updated to include the three key tax provisions to ensure taxpayers receive their refunds faster than filing paper tax returns.  The IRS is urging taxpayers to use e-file instead of the paper forms to minimize confusion over the late changes and reduce the chance of making extender-related errors on their returns.

The majority of taxpayers file electronically, but taxpayers using a paper Form 1040 will have to follow special instructions if they are claiming any of the three deductions. Form 1040 will not be updated. Taxpayers should follow these steps for claiming the educator expense deduction:

• Educators must file Form 1040 (PDF) in order to take the deduction for up to $250 of out-of-pocket classroom expenses.  It cannot be claimed on Form 1040A.
  
  
• The deduction for educator expenses will be claimed on Form 1040, line 23, "Archer MSA Deduction."  Enter "E" on the dotted line to the left of that line entry of claiming educator expenses, or "B" if claiming both an Archer MSA deduction and the deduction for educator expenses on Form 1040.  If entering "B", taxpayers must attach a breakdown showing the amounts claimed for each deduction.

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