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.
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COVID-19 and Employment, Remote Work Expenses
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 2021 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.
Additionally, if you are an employee who was required to work from home as a result of the COVID-19 Pandemic, your employer may be required to reimburse you for certain expenses. These reimbursements would be for reasonable and necessary home office expenses, which may include a portion of the expenses associated with:
- Cell phone or landline plan
- Home internet plan
- Personal computer or tablet
- Fax machines
- Teleconferencing software or hardware.
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.
Job Related Expenses I Can Deduct
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.
- Educator expenses up to $250 ($500 if you are married filing jointly). This will be $300 or $600 in 2022.
- Mileage Rate deductions for certain professions.
- Impairment-related work expenses for persons with disabilities - see below.
- An overview of Medical Deductions as some of them are job related.
- You can take a tax deduction for money contributed to your Health Savings Account (HSA) by anyone except your employer. The money you take out of the account is tax-free if you use it for qualified medical expenses.
- Amortization on the excess of a bond premium where the stated principal is greater that what you paid for the bond.
- Casualty or theft loss from a federally declared disaster area or on an income-producing property such as stocks, notes, bonds, gold, silver, vacant lots, and works of art.
- Unlawful discrimination claims.
- Unrecovered investment in an annuity - A retiree who contributed to an investment in an annuity can exclude from income a part of each payment received as a tax-free return of the retiree's investment. If the retiree dies before the entire investment is recovered tax-free, any un-recovered investment can be deducted on the retiree's final income tax return.
- An ordinary loss attributable to a contingent payment debt instrument or an inflation-indexed debt instrument (for example, a Treasury Inflation-Protected Security).
- Losses from Ponzi-type investment schemes.
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.
Deductible Employee Expenses for Special Categories
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:
- Armed Forces Reservist - You are a member of a reserve component of the Armed Forces of the United States if you are in the Army, Navy, Marine Corps, Air Force, or Coast Guard Reserve; the Army National Guard of the United States; the Air National Guard of the United States; or the Reserve Corps of the Public Health Service. You may qualify for the Reservists' Travel Tax Deduction if you are a member of a reserve unit of the Armed Forces of the United States and travel more than 100 miles away from home to perform your services as a member of the reserves. The deduction allows you to deduct your travel expenses as an adjustment to gross income rather than as a miscellaneous itemized deduction.
- Qualified Performing Artist (QPA) - A performing artist refers to an artist who partakes in the performance as an employee; this does not include those who work behind the camera. You are generally considered an employee If you performed services in the performing arts as an employee for at least 2 employers during the tax year, had wages of $200 or more per employer, and meet these requirements:
- Your allowable business expenses related to the performing arts exceed 10% of your gross income from the performing arts.
- Your adjusted gross income is equal to or less than $16,000 before deducting these business expenses.
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:
- The work location is outside the metropolitan area where you live and normally work.
- You have at least one regular work location (other than your home) for the same trade or business. (If this applies, the distance between your home and the temporary work location is irrelevant.)
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 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 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.
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. For 2021-2022, meals provided by restaurants may be 100% deductible.
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, meals, 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.
Tax Deductible Job Search Expenses
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:
- You are looking for a new job or profession.
- There was a substantial break between the end of your last job and your search for a new one.
- You are in the job market for the first time.
- The expenses were reimbursed.
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.
Employment and Outplacement Agency Fees
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.
Moving Expenses Related to a New Job
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:
- The cost of meals eaten while traveling between your old and new homes
- The purchase price of your new home
- Expenses covered by reimbursements excluded from income.
Travel and Transportation 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.
Job Search Expenses
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.
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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