What is a “Tax Loss Carry over”?
A degree comes at a high cost. Fortunately, students can claim a lot of their tuition fees in tax returns. Certainly there’s money from the state in return for an education only if taxes were being paid, too. Since most students don’t even pay taxes, because their annual incomes stays below the basic tax-free allowance of 8.652 Euro (2016), the German tax law offers an advantageous solution– the tax loss carry over.
Through a loss carry over the tax authority can be informed of tuition payments (= losses) via tax declaration. The tax authority will notice the specified expenses and the stated losses will be offsetted against tax as soon as the first time tax declaration is filed. This means employees will get tax return for the tuition fees on file. For the self-employed, the respective amount is deducted from the tax payable.
Can all students use a tax loss carry over?
All students completing a second degree (master or bachelor with previous vocational training) can claim their educational and occupational expense as work related tax deductions.
For students completing their first degree, the current finance authority only acknowledge the tuition fees as extraordinary expenses, a loss carry over is therefore not possible (see notes below).
Loss carry over
A tax loss occurs when students report less income than expenses. The tax authority will automatically record this loss as a tax bonus type, which will be redeemed as soon as the taxes are paid.
No loss carry over
If students report more income than expenses and pay taxes on their income, the specified tuition fee can be deducted against tax in the tax declaration and a loss carry over is not necessary. A tax refund immediately takes place.
In 2015, the Federal Fiscal Court ruled that the unequal tax treatment of initial and secondary education is unconstitutional. In doing so, most observers assumed that the Federal Constitutional Court would be the last instance to rule that people in initial education can carry forward losses. Contrary to general expectation, the Federal Constitutional Court handed down its ruling at the end of 2019 and decided that initial education is different from secondary education. A justification was given for this that is hardly comprehensible.
The consequence, however, is unfortunately that the tax offices no longer offset the costs of initial education as a loss carryforward against the tax claims of subsequent years. Instead, they can only be claimed as special expenses. The result is that the costs can only have a tax-reducing effect in the actual tax year in which they are incurred.