The “One Big Beautiful Bill” (OBBB), signed into law on July 4, 2025, represents the most sweeping tax reform since the Tax Cuts and Jobs Act (TCJA). While the legislation spans hundreds of pages, individual taxpayers need to be aware of key changes regarding educator expenses that will impact them.

Background Discussion

In 2002, a $250 above-the-line deduction (i.e., a deduction available to taxpayers who do not itemize) was enacted for eligible educators for unreimbursed expenses incurred for books, supplies, computer equipment (including software), other equipment, and supplementary materials used in the classroom. Eligible educators were defined as K-12 teachers, instructors, counselors, principals, or aides in a school for at least 900 hours during a school year. When first enacted, this deduction was only available for 2002 and 2003, but it was extended several times and eventually made permanent in 2015. The $250 amount was also indexed to inflation starting in 2016. No further amendments were made to the deduction for educator expenses until the enactment of the OBBB.

Summary of OBBB Changes

The OBBB made significant changes to the treatment of educator expenses, effective for tax years beginning after 2025. The above-the-line deduction was retained, but for the first time, eligible educators could now include any excess expenses in their itemized deductions. This change significantly increases the amount of expenses that eligible educators can potentially deduct each year. The scope of eligible expenses was also broadened to include expenses incurred for an “instructional activity” (not just the classroom) – and to include nonathletic supplies for courses in health or physical education. The scope of eligible educators was also broadened to include interscholastic sports administrators and coaches.

Taxpayers and tax preparers should take note of the following items:

• Starting in 2026, eligible educators need to begin tracking all their unreimbursed expenses, as defined above. Previously, there was no incentive for educators to track expenses beyond the old $250 limit, but now, the potential for tax savings is much greater, so carefully tracking these expenses will be important.

• Be aware of new expense categories that will be eligible for the first time starting in 2026, as discussed above.

• Interscholastic sports administrators and coaches will be eligible for this deduction for the first time starting in 2026 and should begin tracking their expenses accordingly.

Contact your YHB advisor today to discuss how these changes can impact you.