How to Claim Tax Relief for Educational Expenses

What is a 'tax deduction'

According to sub-paragraph 14.1.170 of the Tax Code of Ukraine (TCU), a tax deduction for individuals who are not business entities is a documented amount (value) of expenses incurred by a taxpayer – resident in connection with the acquisition of goods (works, services) from residents – individuals or legal entities during the reporting year, for which a reduction of their total annual taxable income, received as a result of such reporting year in the form of wages, is allowed, in cases defined by the TCU.

That is to say, the tax deduction applies only to income in the form of wages and does not apply to the income of individual entrepreneurs or self-employed persons.

Which educational expenses can be included in the tax deduction

Based on sub-paragraph 166.3.3 of the TCU, the taxpayer has the right to include in the tax deduction, for the purpose of reducing the taxpayer's taxable income for the reporting tax year, expenses actually incurred by them during the reporting tax year in the form of amounts paid by the taxpayer to domestic institutions of:

• preschool
• extracurricular
• general secondary
• vocational (vocational-technical)
• higher education.

That is to say, the taxpayer is entitled to a tax deduction for paid educational expenses either for themselves personally, and/or for a family member (parents, husband or wife, children, including adopted children).

What should be the documentary confirmation of educational expenses

According to sub-paragraph 166.2.1 of the TCU, educational expenses must be confirmed by appropriate payment and settlement documents that identify the seller of goods (works, services) and their buyer (recipient).

Specifically:

• receipts
• fiscal receipts
• sales receipts
• cash-in orders
• copies of agreements,

The specified documents must necessarily reflect the cost of such goods (works, services) and the period of their sale (performance, provision).

To avoid possible misunderstandings with tax authorities, it is advisable to indicate in the payment documents both the child and the person who will subsequently apply for the tax deduction.

How much personal income tax can be refunded

The general algorithm for accounting for the tax deduction to reduce the taxpayer's taxable income by the amount of educational expenses incurred, based on the results of the reporting tax year, is as follows:

1. The annual amount of accrued wages is determined (this information is taken from the income certificate from the employer).
2. Based on supporting documents, the amount of educational expenses of the taxpayer, allowed for inclusion in the tax deduction, is determined. At the same time, the total amount of the tax deduction accrued to the taxpayer in the reporting tax year cannot exceed the annual amount of accrued wages.
3. The amount of personal income tax that can be refunded to the taxpayer due to the exercise of the right to a tax deduction is calculated as follows:
   Amount of PIT to be refunded = amount of PIT paid by the employer from wages for the calendar year – amount of PIT determined as the product of the annual wages, reduced by the amount of educational expenses incurred by the taxpayer, and the tax rate (currently 18%).

What needs to be done to receive a tax refund

The grounds for accruing a tax deduction are reflected by the taxpayer in the annual tax declaration, which is submitted by December 31 inclusive of the year following the reporting tax year to the controlling authority where the taxpayer is registered.

If the taxpayer, by the end of the tax year following the reporting year, has not exercised the right to accrue a tax deduction based on the results of the reporting tax year, such right is not carried over to subsequent tax years.

The amount of tax to be refunded is credited to the taxpayer's bank account, opened in any commercial bank, or sent by postal money order to the address specified in the tax declaration on property status and income within 60 calendar days after the receipt of such tax declaration.

When can one use the tax deduction

For the purpose of obtaining a tax deduction for the amount paid by the taxpayer during the reporting year to domestic institutions of preschool, extracurricular, general secondary education, the declaration on property status and income is submitted for the 2021 calendar year by December 31, 2022.