Employee Expense Tax Deductions
Employee Expense Tax Deductions
There are some (albeit few!) expenses that can still be deducted as the result of the 2018 Tax Reform. A detailed list of employee expenses that have been discontinued as employee tax deductions – some until 2026, and others beyond that.
The Tax Cuts and Jobs Act removed many miscellaneous deductions, including employee expense deductions, but increased the standard deduction. As a result, this allows taxpayers to easily claim the standard deduction and save more on their taxes rather than figure out how to itemize their deductions. When you prepare your taxes on eFile.com, the tax app will select the deduction method that benefits you the most and apply it accordingly.
magnet me, Unsplash @magnet.me
If you recently began searching for work due to COVID-19 or other life-changing events, even though the traditional deductible job search expenses are no longer deductible on your tax return due to the higher standard deduction, you might overall have a tax advantage if you don’t have to search for a job every year or if your job search expenses are not that high to begin with. Plus, depending on where you get a new job, your new employer might reimburse you for some of your moving expenses; it’s worth asking your employer about it.
As a result of the COVID-19 pandemic Congress introduced the Employee Retention Credit. Even though it is a credit that can not be claimed by a taxpayer directly on the 2020 Tax Return, it might still apply to a taxpayer. Not only as a result of COVID, in more and more states Employers are required to reimburse employees for necessary expenses.
For example, based on Section 2802 of the California Labor Code employers are required to reimburse reasonable and “necessary” expenses to employees as a result of a direct consequence of discharging their job duties. The thought behind this regulation is to prevent employers from passing their operating expenses on to their employees.
Overall, Section 2802 applies broadly to many employee’s expenses that are required to perform their jobs, including vehicle expenses, travel expenses, and cell phone and internet plans. For example, if it is mandatory for employees to use their own personal cell phones for work, generally they must be compensated for a reasonable percentage of their personal phone plans. For many companies, this requirement has already impacted how companies implement Bring-Your-Own-Device or BYOD and remote or work from home programs. The potential obligation to reimburse employees for remote work expenses is not limited to California as other states, including New Hampshire, Iowa, Illinois, Montana and South Dakota, have enacted laws which may require reimbursement of employee expenses. However, case law in these states is not as well-developed as it is in California.
Here is the point – even though your employer might not be required to reimburse certain work related expenses to you, you still might want to discuss it with your employer; re-reimbursed expenses to you are not taxable income.
Below are the allowable employee business expenses that can be deducted. If you need to claim any of these expenses, they are entered on the Itemized Deductions – Job, Tax and Other Expenses form when you prepare your return on eFile.com.
For a full list of these deductions, including those not directly related to employment, see tax deductions, miscellaneous tax deductions, and IRS Publication 529, Miscellaneous Deductions. These include deductions on fines or penalties and repayments of debt. The eFile App will report these deductions on the proper forms when you prepare your taxes on eFile.com.
For ONLY for those employees in the categories below, some unreimbursed employee expense are deductible. When you prepare your return on eFile.com, these are entered on eFileIT Form 2106 in your account:
Fee-basis state or local government officials – If you are paid on a fee basis for your services, you can claim expenses in performing services in that job as an adjustment to income rather than as a miscellaneous itemized deduction. In order to qualify under this structure, you must be employed by a state or local government and be paid in whole or in part on a fee basis.
Employee with impairment-related work expenses – If you are physically or mentally disabled and are limited in your ability to perform your job (such as performing manual tasks, walking, speaking, breathing, learning, and working) you can deduct any impairment-related work expenses. Impairment-related work expenses are ordinary and necessary business expenses for attendant care services at your place of work and other expenses in connection with your place of work that are necessary for you to be able to work.
Deductible Expenses for the Above Categories
If you fall into any of the above categories, you may be able to make these deductions on your tax return.
Vehicle expenses; parking fees, tolls, transportation
You can deduct vehicle expenses using one of two methods: the standard mileage rate or the actual expense method. Local transportation expenses are expenses incurred while traveling from one workplace to another when you are not traveling away from home. They include the cost of transportation by air, rail, bus, taxi, and the cost of using your car. You can choose to use the standard mileage rate to figure your car expenses. See the current mileage rate for business use of a vehicle.
If you perform work at two separate locations in a day, whether or not for the same employer, you can generally deduct any travel expenses incurred while traveling between the two locations.
You can deduct expenses incurred while traveling between your home and a temporary work location if at least one of the following applies:
For this purpose, a work location is considered temporary if your work there is realistically expected to last (and does in fact last) for 1 year or less. It is not temporary if your work there is realistically expected to last for more than 1 year, even if it actually lasts for 1 year or less. If you begin work and expect it to last less than a year but that changes, then the work is temporary for that first year. After that, it is not a temporary workplace.
Travel Expenses
Travel expenses are sustained when traveling on business away from home for your employer. While you may deduct travel expenses incurred in connection with a temporary work assignment, you cannot deduct travel expenses paid in relation to an indefinite work assignment.
Travel expenses include the following the cost of getting to and from your business destination, meals and lodging, while on travel, baggage charges, and cleaning and laundry expenses.
Business Expenses
Business expenses that are ordinary (common in your industry) and necessary (needed or helpful for your trade or business). Examples are capital expenses, cost of goods sold, business assets, improvements). See IRS Publication 535, Business Expenses, for more information.
These business expenses must directly relate to your profession under one of the four previously mentioned categories.
Meal Expenses
You can deduct entertainment expenses (including entertainment-related meals) only if they are directly related to the active conduct of your trade or business. However, the expense only needs to be associated with the active conduct of your trade or business if it directly precedes or follows a substantial and bona fide business-related discussion. You can deduct only 50% of your business-related meal and entertainment expenses unless the expenses meet certain exceptions. You apply this 50% limit before you apply the 2%-of-adjusted-gross-income limit – the eFile App will do this for you.
If you are self-employed, you can deduct medical expenses, taxes paid, home mortgage interest, and charitable gifts to name a few in addition to advertising, utilities, and other expenses related to your business costs. As a self-employed taxpayer, review the 1099 forms you may be expecting to report and learn what defines an independent contractor.
Home Office Deduction
If you’re self-employed and use part of your home for your business, you can deduct home office business expenses against your self-employment income.
Like employee deductions, job search expense deductions are no longer deductible from tax years 2018 – 2025. Unless this is extended, this rule will expire and these deductions may be claimable for 2026 returns. This information will remain for back taxes or previous year’s tax return as well as future returns in which it may apply.
Because looking for a job is a job in itself, efforts and fees you may come across may be deductible. You cannot claim these deductions if:
Below are deductible expenses that are claimable outside of the years define by the Tax Cuts and Jobs Act.
See also: if your job was affected by the COVID-19 Pandemic, see this page on the Recovery Rebate Credit and Employee Retention Credit. Additionally, find information on unemployment benefits and taxes.
You can deduct some job placement agency fees you pay to look for a new job in your current profession. Should your employer repay you for employment agency fees at a later date, you must include any amount received in your gross income up to the amount of your tax benefit in the earlier year. The IRS refers to this type of income as a recovery and it is considered taxable income.
From Tax Years 2018-2025, you can only claim the moving expenses deduction if you are an active duty military member or if you are an employee who incurred reimbursed expenses dated before January 1, 2018 and did not claim them on a prior tax return.
If you recently moved to another city for a new job or because your old job is now at a new location, you may be able to deduct your job related moving expenses on 2017 and earlier tax returns. If you can satisfy the distance and time tests, then your job-related moving expenses might be tax deductible. Members of the armed forces do not have to meet these tests if the move was due to a permanent change of station.
How to Meet the Distance Test
The distance test is met if your new workplace is at least 50 miles further from your former home than your previous workplace from that home. For example, if your old job was 10 miles from your former home, your new job must be at least 60 miles from that home.
How to Meet the Time Test
To fulfill the time test, you must work full-time for at least 39 weeks during the 12 months immediately following your move. If you are self-employed, the time test requires you to work full-time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months after your move. You can deduct your moving expenses on your tax return even though you have not met the time test by the date your return is due if you expect to meet the 39-week or the 78-week test as required.
Other Expenses Related to a Job Move
Realistic and practical moving job expenses are deductible and include the costs of moving your personal and household items to your new home. You can also deduct the expenses of traveling to your new home, including lodging costs.
However, you cannot deduct the following expenses:
If you travel to and from another area to search for a new position in your current occupation, you may be able to deduct the cost of the trip. However, the trip must be primarily related to a new job search in order for the travel expenses to be deductible. If looking for a job is not the main objective of the trip, you may still be able to deduct some travel costs. The amount of time spent on personal activity compared to the amount of time spent searching for work will determine whether the trip is primarily a personal or a job searching trip.
Report job search expenses as miscellaneous deductions on Schedule A, Itemized Deductions. You can deduct the total miscellaneous deductions that are more than 2 percent of your adjusted gross income.
Resume Fees
You can claim a deduction on expenses incurred for preparing and mailing copies of a resume to prospective employers.
Premium Tax Credit Related to Your Job Search
If you received an advance payment of the Premium Tax Credit (which provides financial assistance to help you pay for health insurance you buy through the Health Insurance Marketplace), make sure that you report life changes your Health Insurance Marketplace. These changes include moving to a different state as well as your income or family size.
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