Tax incentive for individuals

Definition and description

Tax incentives are the concessions in tax codes that mean a conscious loss of government budgetary revenue. They are usually intended by public authorities to encourage particular types of behaviour (in relation to education and training, in this case) and/or to favour specific groups (certain individuals in this case). Tax incentives reduce either the tax base (tax allowance) or the tax due (tax credit).

Adults with low or no income, paying no personal income tax, cannot profit from the tax deduction. Only if a negative income tax is implemented correcting this imbalance, low wage earners could profit from education and training related tax incentives.

When income tax is progressive, adults in higher tax classes profit more from the tax deduction from the tax base than adults in lower tax classes.

In some countries, adults can deduct educational costs for members of their households, in particular for their children; yet, the maximum deductible amount then applies to both costs for their own training and the costs for their household’s members training (as, for example, in Estonia).

Companies may cover the costs of educational and training activities (mainly) in the interest of their employees, which could be regarded as taxable income (fringe benefits). A particular tax exemption can be granted for these benefits within certain limits.This type of tax incentives is not reported in this database.

Exceptions from value added taxes for some training activities or types of training providers are also present in some Member States (for example in Austria), potentially reducing the costs of services for individuals (see CEDEFOP 2009). However, they are not reported in this database.