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Employee Expenses Tax Deductions

Employee Expenses Tax Deductions

Some expenses can still be deducted due to the tax reform that happened in 2018. A detailed list of employee expenses that have been suspended as employee tax deductions, some until 2026 and others beyond that.

The Tax Cuts and Jobs Act eliminated many miscellaneous deductions, including deductions for employee expenses, but increased the standard deduction. As a result, taxpayers can easily claim the standard deduction and save more on taxes rather than figuring out how to itemize their deductions.


COVID-19 and employment, remote work expenses

Suppose you recently started looking for a job due to COVID-19 or other life-altering events. In that case, even if traditional deductible job search expenses are not deductible on your tax return due to the higher standard deduction, you might still have a tax advantage if you don't have to look for a job every year or your job search expenses aren't that high to start with. Also, depending on where you find a new job, your employer might be able to reimburse you for some of your moving expenses.

As a result of COVID-19, Congress introduced the Employee Retention Credit for 2021 tax returns. This was a credit that could not be claimed directly by the taxpayer on the 2021 tax return but could still be applied. Not only because of COVID are employers in more and more states are being required to reimburse employees for necessary expenses. We don't currently know if it will be available for 2022 returns (which you file in 2023).

For example, under Section 2802 of the California Labor Code, employers must reimburse employees for reasonable and "necessary" expenses incurred as a direct result of discharging their job duties. This regulation aims to prevent employers from passing on their operating costs to their employees.

Section 2802 generally applies to several employee expenses necessary to do their job, including travel expenses, vehicle expenses, and cell phone and internet plans. For example, if employees must use their cell phones at work, they should generally be compensated for an appropriate percentage of their personal phone plans. For many businesses, this requirement has already affected how companies implement Bring Your Own Device, or BYOD, and remote or work-from-home programs. The potential obligation to reimburse remote employee expenses is not restricted to California, as other states, including Iowa, Illinois, Montana, New Hampshire, and South Dakota, have enacted laws that may require employee reimbursement. However, the case law in these states is not as developed as in California.

Additionally, if you are an employee forced to work from home due to the COVID-19 pandemic, your employer may be mandated to reimburse you for certain expenses. These reimbursements would be for necessary and reasonable expenses of working from home, which may include some of the expenses associated with the following:

  • Cell phone or landline plan

  • Home Internet package

  • Personal computer or tablet

  • Fax Machines

  • Teleconferencing software or hardware.

Here's the point: although your employer is not required to reimburse you for certain work-related expenses, you can discuss this with your employer; the expenses reimbursed to you are not taxable income.

Job-related expenses I can deduct.

Below is the list of allowable business expenses for employees that can be deducted. 

  • Amortization of excess of a bond premium for a security with a stated capital greater than the amount you paid for the security.

  • An ordinary loss is attributable to a contingent payment debt security or an inflation-indexed debt security (for example, a treasury inflation-protected security).

  • Medical deductions, as some of them are work-related.

  • Casualty or theft loss in an income-producing property such as stocks, bills, silver, vacant lots, bonds, gold, and works of art or a federally declared disaster area.

  • Educator fees are up to $300 ($600 if married filing jointly). It was $250 and $500 on MFJ for 2021 returns.

  • Impairment-related work expenses for people with disabilities.

  • Losses from Ponzi investment schemes.

  • Mileage discounts for certain professions.

  • Unrecovered annuity investment - A retiree who has contributed to an investment in an annuity may exclude from income a portion of any payment received as non-taxable profit on the retiree's investment. If the retiree should die before the entire investment is recovered tax-free, any unpaid investment may be deducted from the retiree's final tax return.

  • Unlawful discrimination claims.

  • You can get a tax deduction for amounts contributed to your HSA (Health Savings Account) by anyone other than your employer. Money withdrawn from the account is tax-free if used for eligible medical expenses.

Deductible employee expenses for special categories

This is only for employees in the following categories; certain unreimbursed employee expenses are deductible. 

1) Armed Forces Reservist: You are a member of a reserve component of the United States Armed Forces if you are in the Air Force, Army, Marine Corps, Navy, or coast guard; U.S. Air National Guard; U.S. Army National Guard; or the Public Health Service Reserve Corps. You may qualify for the reservist travel tax deduction if you are a member of a U.S. military reserve unit and travel more than 100 miles from home to serve as a member of the reserve. The deduction allows you to deduct travel expenses as an adjustment to your gross income rather than as a miscellaneous itemized deduction.

2) Qualified Performing Artist (QPA): A performing artist is an artist who takes part in the performance as an employee (those who work behind the camera are not included). Generally, you are considered an employee if you provided performing arts services as an employee of at least two employers during the tax year, have a salary of $200 or more per employer, and meet the following conditions:

  • Your allowable business expenses related to the performing art exceed 10% of your gross income from the performing arts.

  • Your adjusted gross income is $16,000 or less before deducting these business expenses.

3) Free basis state or local government official: If you receive a fee basis for your services, you may be able to claim expenses in providing services for that work as an adjustment to income and not as a miscellaneous itemized deduction. To be eligible, you must be employed by a local or state authority and be paid in part or whole on a fee basis.

4) Employee with disability-related work expenses: If you have a physical or mental disability and have a limited ability to do your job (such as crafting, breathing, learning, walking, speaking, and working), you can deduct any disability-related work expenses. Disability-related business expenses are ordinary and necessary business expenses required for attendant care services at a workplace and other work-related expenses that are necessary for you to work.

Deductible expenses for the above categories

If you fall into one of the above-mentioned categories, you can make these deductions on your tax return.

Parking fees, Vehicle Expenses, Transport, Tolls

You can claim vehicle expenses using one of these methods: the actual expense method or the standard mileage rate. Local transportation costs are the expenses you incur when traveling from one place of work to another when you are not far from home. These include the cost of using your car, plane, train, bus, or taxi, and the cost of using your car. You can use the standard mileage rate to calculate your car expenses. 

Suppose you work at two different locations on the same day. In that case, whether for the same employer or not, you can generally deduct travel expenses incurred while traveling between both locations.

You can deduct expenses you incurred while traveling between your home and a temporary job if at least one of the following conditions applies:

  • The job location is outside the metropolitan area where you normally live and work.

  • You have at least one regular work location (in addition to your home) for the same job or business. (If so, the distance between your home and the temporary job doesn't matter.)

For this purpose, a job is considered temporary if your job is expected to last (and will last) 1 year or less. It is not temporary if your position is supposed to last more than a year, even if it is one year or less. If you start work and expect it to last less than a year, but that changes, the job will be temporary for the first year. After that, it's not a temporary job.

Travel Expenses

Travel expenses are incurred when you travel away from home for your employer. Although you can deduct travel expenses incurred under a temporary work assignment, you are not allowed to deduct travel expenses paid under a permanent work assignment.

Travel expenses include the following: travel costs to and from the business destination, meals, and accommodation while traveling, baggage fees, and cleaning and laundry costs.

Business Expenses

Business expenses that are ordinary and necessary (necessary or useful for your business or trade). Examples are business assets, capital expenses, cost of goods sold, and improvements. 

These business expenses must be directly related to your profession in one of the four categories listed above.



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