Tax-Free Employee Reimbursement for Work-Related Expenses
Unreimbursed employee expenses used to be deductible under miscellaneous itemized deductions if the total miscellaneous deductions exceeded 2% of their adjusted gross income. However, when the Tax Cuts and Jobs Act took effect in 2018, miscellaneous itemized deductions subject to the 2% floor are no longer deductible on your federal income tax return (some states still allow). So what can you do about this?
Ask for Reimbursement from Your Employer
The tax law allows for employees to receive tax-free reimbursement from their employers if they meet all of these conditions: pass the employer’s convenience test, meet the requirements for the home office deduction, and have an accountable plan.
Pass the Employer’s Convenience Test
You must be working at home for your employer’s convenience, not because of your personal choice. Employer’s convenience can be met if working from home is a condition of employment, necessary for the employer’s business to properly function, or needed to allow the employee to properly perform their duties.
For example, if your employer’s office is temporarily closed and they require you to work from home, then you are working from home for your employer’s convenience. However, if your employer provides you with office space, but you choose to work out of your own home instead, then you are working from home for your own convenience, rather than your employer’s.
Meet the Requirements for the Home Office Education
You must meet the same requirements for the home office deduction as if you were a self-employed taxpayer. Your home office must be your principle workplace, and you must regularly and exclusively use a portion of your home for business-related activity. If you use a room for both business and personal reasons, then you are ineligible.
Have an Accountable Plan
To have an accountable plan, employees must:
You can get reimbursed by your employer for the same home office expenses like a self-employed taxpayer can claim. For example, direct expenses, like computers, monitors, printers, or other equipment, can be reimbursable by your employer. Indirect expenses, such as utilities, home mortgage interest, real estate taxes, and insurance, are also reimbursable for the business percentage only. However, each company has their own policy on what they will reimburse, so please check with your company to see if any of these qualify.
Ask for Reimbursement from Your Employer
The tax law allows for employees to receive tax-free reimbursement from their employers if they meet all of these conditions: pass the employer’s convenience test, meet the requirements for the home office deduction, and have an accountable plan.
Pass the Employer’s Convenience Test
You must be working at home for your employer’s convenience, not because of your personal choice. Employer’s convenience can be met if working from home is a condition of employment, necessary for the employer’s business to properly function, or needed to allow the employee to properly perform their duties.
For example, if your employer’s office is temporarily closed and they require you to work from home, then you are working from home for your employer’s convenience. However, if your employer provides you with office space, but you choose to work out of your own home instead, then you are working from home for your own convenience, rather than your employer’s.
Meet the Requirements for the Home Office Education
You must meet the same requirements for the home office deduction as if you were a self-employed taxpayer. Your home office must be your principle workplace, and you must regularly and exclusively use a portion of your home for business-related activity. If you use a room for both business and personal reasons, then you are ineligible.
Have an Accountable Plan
To have an accountable plan, employees must:
- Make an “adequate accounting” of expenses
- Timely submit expense reports and receipts to your employer
- Promptly return any payments that exceed what you spent for job expenses
You can get reimbursed by your employer for the same home office expenses like a self-employed taxpayer can claim. For example, direct expenses, like computers, monitors, printers, or other equipment, can be reimbursable by your employer. Indirect expenses, such as utilities, home mortgage interest, real estate taxes, and insurance, are also reimbursable for the business percentage only. However, each company has their own policy on what they will reimburse, so please check with your company to see if any of these qualify.