Are CME Reimbursements Taxable Under IRS Rules?

Continuing Medical Education (CME) is a standard requirement for healthcare professionals to maintain their licenses and stay current with medical advancements. The Internal Revenue Service (IRS) provides specific guidelines on whether employer reimbursements for these educational activities are considered taxable income. The tax treatment depends on whether the expenses and the reimbursement arrangement meet a series of defined criteria.

Defining Qualifying Education Expenses

For the IRS to consider CME costs as a valid business expense, the education must meet at least one of two specific tests. The first is that the education maintains or improves skills needed for your present work. This includes advanced training on new procedures, conferences on recent medical discoveries, or courses on updated treatment protocols relevant to a professional’s current role.

The second test is met if the education is required by an employer or by law to keep your present salary, status, or job. A common example for medical professionals is the mandatory CME credits required by state medical boards to maintain licensure. If a hospital requires its emergency room physicians to be certified in advanced trauma life support, the cost of that certification course would be a qualifying expense.

However, education that is necessary to meet the minimum requirements of your current profession is not deductible. For example, the costs a registered nurse incurs to attend medical school to become a doctor are not qualifying expenses. Similarly, education that qualifies you for a new trade or business is not eligible, even if you do not plan to enter that new field. These distinctions are based on the framework outlined in IRS Publication 508.

Employer Reimbursements Under an Accountable Plan

The primary way to receive tax-free CME reimbursements is through an employer’s accountable plan. This is a reimbursement arrangement that satisfies three IRS requirements. If a plan meets these conditions, reimbursements are not considered wages, are not included on an employee’s Form W-2, and are exempt from income and employment taxes.

An accountable plan must satisfy the following conditions:

• The expenses must have a business connection, meaning the CME costs are for qualifying work-related education.
• The employee must adequately account for their expenses to the employer within a reasonable period by providing documentary evidence like receipts.
• The employee must return any excess reimbursement or allowance within a reasonable time. For example, if an employee receives a $2,000 advance but only spends $1,800, they must return the extra $200.

Plans that do not require the return of excess funds are considered nonaccountable plans by the IRS, and all reimbursements under such a plan are treated as taxable wages.

Substantiation and Recordkeeping Requirements

The IRS requires detailed records to prove the amount, time, place, and business purpose of each expense. For CME, this means keeping all receipts for conference registration fees, tuition for courses, and required educational materials or books.

Documentary evidence should be clear and specific, as a credit card statement alone is often insufficient. An acceptable record, such as a receipt or invoice, must show the name of the vendor, the date of the transaction, the amount paid, and a description of what was purchased. For example, a receipt should explicitly state “Registration Fee for Annual Cardiology Summit” rather than just a charge from a hotel or event center.

For CME that requires travel, recordkeeping extends to transportation and lodging costs. Professionals must keep receipts for airfare, hotel bills, and rental cars. For meals, taxpayers can use a standard meal allowance, or per diem rate, set by the federal government. Keeping a log of activities during the travel period is also a good practice to establish the business purpose of the trip.

Deducting Unreimbursed CME Costs

When a healthcare professional pays for qualifying CME out-of-pocket without employer reimbursement, the ability to deduct those costs depends on their employment status. For self-employed individuals, such as physicians who own their practice, they can deduct the full cost of qualifying CME as a business expense on Schedule C. This deduction directly reduces their net self-employment income, which lowers both their income tax and self-employment tax liability.

The situation for employees is different due to tax law changes. The Tax Cuts and Jobs Act of 2017 suspended the deduction for unreimbursed employee business expenses for most taxpayers through 2025. This means the vast majority of healthcare professionals who are W-2 employees cannot claim these costs as a deduction.

There are limited exceptions for certain categories of employees, such as Armed Forces reservists, qualified performing artists, and fee-basis state or local government officials. However, these do not apply to most medical professionals.