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Ask the taxgirl: Unpaid Internships

September 13, 2009 · 10 comments

Taxpayer asks:

Hi Kelly,

I had a tax question about unpaid internships and being able to deduct the expenses of that internship on your taxes. From all of the research I did I was unable to find anything that would allow for such a thing. It seems that without a 1099 or w-2 from the company the person doing the internship is inelgible for any type of tax break for the cost she spent to participate in this unpaid internship. A client of mine recently moved for a few months to work on an unpaid internship, and she has to pay to live while doing this intern.. She was wondering if any of those expenses are deductible.

Taxgirl says:

This is a great question. I had to think about it for a bit. Here’s what I think (I think).

The best chance for your client to claim a deduction would be as an educational expense. To be deductible as an educational expense, the expense must be for (1) education that maintains or improves job performance or (2) serves the purpose of the employer and is required by the employer or by law to keep salary, status or job, and (3) the education is not part of a program that will qualify for a new trade or business.

If your clients meet that criteria, then she can deduct tuition, books, supplies, lab fees, and similar items; certain transportation and travel costs; and other education expenses. Moving expenses, however, would not be included.

In fact, even if the client wasn’t a student and could prove that she qualified as an employee, a seasonal internship (paid or unpaid) wouldn’t qualify for a moving expense deduction because it would not satisfy the “time test” requirement piece of the moving expenses criteria.

If the internship was paid, the intern could claim certain expenses on a Schedule C or Schedule A. I don’t think there’s any good argument for claiming expenses against zero income in this case on a Schedule C (unless one of my colleagues wants to make it for me). But I do think you might have a decent case for itemizing some expenses on a Schedule A, Miscellaneous Deductions as unreimbursed job expenses. I think you can make an argument that an intern could be considered an employee despite the lack of compensation.

Of course, the icky part of the Schedule A deductions is that you have to itemize to claim them. I’m guessing that an unpaid intern is also not a homeowner and likely doesn’t have enough deductions to itemize. But if, if, if the intern is itemizing, I think a deduction under Schedule A, Miscellaneous Deductions would work.

To qualify as an unreimbursed employee expense, the expense must be:

  • Paid or incurred during your tax year;
  • For carrying on your trade or business of being an acquired in your trade or business; and
  • Ordinary and necessary.

This was my best guess on this one – it’s a tricky question for sure. I’d be interested to hear what my colleagues think…

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

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{ 5 comments… read them below or add one }

1 Hal Leahy September 13, 2009 at 6:57 pm

If the poster cannot itemizie, they should consider trying to recapture some of the expenses as a Tuition & Fees deduction. This is an adjustment to income on Form 1040 line 34. The amount is carried over from IRS Form 8917 Tuition and Fees Deduction.

See Chapter 6 Tuition and Fees Deduction (page 36) of IRS Pub 970 Tax Benefits For Education for more information.

2 Des September 14, 2009 at 8:59 am

Thanks Tax Girl!! This is very insightful. Unfortunately she doesn’t itemize and the internship has nothing to do with her regular job. It was an opportunity of a lifetime to intern at the White House and she jumped on it, with her job support (meaning they are going to hold her job for her during the intern). Also, she may be able to argue part 1 of the rules to deduct educational expenses..but part 2 and 3 will be difficult.
Hal, that would be a great option to if it was school related. This was a strictly unpaid internship that any citizen could have applied for, nothing school related. It’s actually a great program.. Here is some info on it. http://www.whitehouse.gov/about/internships/

3 Hal Leahy September 14, 2009 at 2:51 pm

Congratulations to the client on the internship. Since the internship is with the White House, another deduction opportunity arises.

The source for the following is IRS Pub 526 Charitable Contributions.

This only works if the client itemizes. Certain expenses related to volunteering are deductible as charitable contributions. In the pub see “Out-of-Pocket Expenses in Giving Services” on page 5. Among the expenses that would be deductible are the daily commute (which can add up) and the cost to get to and from the internship. If these expenses are large enough, they may be enough when combined with other deductions (sales/income tax) to let the client itemize.

The White House should be a qualifying organization. See point 5 on page 3 under “Types of Qualified Organizations”.

4 Des September 14, 2009 at 4:48 pm

Great info Hal.

5 Kevin August 29, 2013 at 2:01 pm

What if the internship i at a hospital or ambulance service. My son is finishing up Paramedic school and 500 hours unpaid internship plus numerous “Clinicals” are required.

Seems to me that at least mileage could be deducted. What do you think?

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