In 2002, an above-the-line deduction for certain classroom expenses of kindergarten through 12th-grade educators was added to the Internal Revenue Code (“Code”). Under this temporary provision of the Code K-12 teachers, instructors, counselors, principals, or aides could deduct up to $250 directly from income when reporting adjusted gross income. This temporary provision was extended six times before, as part of the Protecting Americans From Tax Hikes (PATH) Act of 2015 finally made this benefit to our nation’s teachers permanent.
Not only did PATH finally make this tax deduction permanent, it also provided some additional benefits for our teachers. Beginning in tax year 2016, previously excluded expenditures for professional development now qualify as part of the above-the-line deduction. In addition, the deduction will be indexed for inflation allowing teachers to take a bigger deduction in future years.
Who Is Eligible
To be eligible to take the deduction, the educator must be a K-12 “teacher, instructor, counselor, principal, or aide” in a public or private elementary or secondary school. In addition, the taxpayer must be a qualifying education for at least 900 hours during the school year in order to be eligible for the deduction.
The second stipulation may cause some issues seeing as many school years do not coordinate with the calendar year. This could be especially tricky for first-year teachers. For example, a first-year teacher begins teaching in late August of 2016. By the end of the tax year, meaning December 31, 2016, this teacher may only have 560 hours as an eligible educator. However, by the end of the school year this teacher will have well over the necessary 900 hours. So, does this teacher qualify for the deduction in tax year 2016? This question is still not clear under the Code.
What expenses qualify
According to the National School Supply and Equipment Association (now Education Market Association) NSSEA Retail Market Awareness Study (2013), teachers spent approximately $1.6 billion of their own money on educational supplies. That comes to an average of approximately $945 per teacher per year on classroom supplies. Spending that kind of money is asking a lot of our nation’s teachers who already are underpaid and underappreciated.
So what, of the $945 that the average teacher spends out-of-pocket, is eligible for the above-the-line deduction? Since the inception of the deduction back in 2002, eligible expenses include allowable trade or business expenses including books, supplies, computer equipment (including related software and services, and other supplementary materials used in the classroom. Beginning in tax year 2016, expenses paid or incurred for participation in professional development that relate to “the curriculum in which the educator provides instruction” are also eligible as part of the deduction.
Teachers should make sure to keep all of their receipts to track the expenses, just in case the IRS comes knocking at your door.
What if I spend more than $250?
As was pointed out by the Education Market Association, the average teacher spends $945 a year of his or her own money on classroom related expenses. Since the deduction is limited to $250, what can an eligible educator due with the additional $695? The answer is that these expenses can be claimed as a miscellaneous itemized deduction.
The downside here is that miscellaneous itemized deductions are subject to a 2%-of-adjusted-gross-income (floor) so it is pretty rare for someone to benefit from these additional miscellaneous deductions but if someone was to qualify it just might be a teacher. Assuming there are no other adjustments to income, an eligible educator could make no more than $35,000 to get even a single dollar of benefit from the miscellaneous itemized deduction.
Take the Deduction
Teachers, make sure you provide your tax preparer with all the necessary information they need to ensure you can receive the maximum benefit of the now permanent educator deduction. It is a small but it is a helpful. tool in providing a benefit to those hard-working and under-paid teachers.
If you have more questions about how you may be able to take advantage of this deduction, please contact Clark Accounting Services at (703) 798-9200 or firstname.lastname@example.org.