Tax Guide

2020 Home Office Deduction: Everything You Need to Know to Reduce Your Tax Due & Take Advantage of Available Credits

2020 Home Office Deduction: Everything You Need to Know to Reduce Your Tax Due & Take Advantage of Available Credits
Ines Zemelman, EA
12 January 2021

The Coronavirus/COVID-19 global pandemic forced a transition to working from home for millions of employees. Many of them are not sure if they qualify for any home office deductions. Read our article to find out.

Can employees deduct home office expenses?

The IRS makes clear distinctions between employees and self-employed individuals. 

If people who are employees are now working from home, they wouldn't be able to deduct the same things as self-employed people do because the IRS recognizes them as "employees." They remain employees even though they are working from home. 

As an example — someone who works for Uber in their marketing department is likely an employee, even if they work from home. Whereas an uber driver, who is a contractor and self-employed, yet earning money from Uber, can deduct various business-related expenses as a self-employed individual and thus reduce their taxable income.

Employees can apply for reimbursement from their employer. The tax reform of 2017 eliminated the deduction of unreimbursed employee expenses.

Employees are not self-employed and therefore can no longer deduct expenses related to work duties while working from home,” says Ines Zemelman, president and founder of Taxes for Expats.

Who qualifies for reimbursement?

Certain states issued regulations that require employers to reimburse employees for pandemic-related expenses. These states include California, Illinois, Minnesota, Iowa, Montana, New Hampshire, and the District of Columbia. There are no federal rules requiring companies to reimburse individuals in other states as long as those expenses don’t push a worker’s income to below the minimum wage.

To qualify for reimbursement, the expense should be ordinary and necessary. I.E., home remodeling to convert an attic to a home office cannot be claimed as an ordinary and necessary business expense. Whereas setting up a home office in a spare bedroom (purchasing office furniture and office supplies) qualifies.

Another example — an employee who chose to work during the COVID pandemic from his summer house can arguably claim the cost of airfare for getting there. However, he can certainly claim that location as a home office. The percentage of the mortgage, rent, utilities, and repair cost allocated to the area used exclusively for business can be claimed for reimbursement — as long as the company expense policy allows it. 

How to request reimbursement?

To request reimbursement, employees should submit expense claims to the employer to request reimbursement.

For the reimbursement claim to be valid, the employee must show:

  • They incurred necessary expenditures;
  • While in the discharge of their job duties;
  • The employer knew or had reason to know of the expenditures

 

The types of expense covered while working from home during COVID-19 Pandemic include, but are not limited to:

  • Mask and other protective equipment
  • Personal Cell Phone Reimbursement
  • Personal Cell Phone Data Reimbursement
  • Personal Printer Reimbursement
  • Personal Vehicle Reimbursement at the IRS-approved rates.
  • Personal computer, iPad, or tablet repairs, maintenance, and additional depreciation costs associated with the use of electronic equipment.  
  • Personal Internet Reimbursement
  • Personal Software Reimbursement - employers who do not provide employees with application or software access must reimburse employees for the use of their personal software when it is necessary for completing work duties.

Are there any expenses that weren't deductible before the pandemic but are now?

As work-from-home-related charges have come up more frequently and exceeded other types of expenses, companies began establishing written rules on how much can be spent on particular expense categories. Many companies are offering more and more benefits to employees to help create a better employee experience for them. Other businesses set a strict limit on how much employees can spend. Overall, it depends on company size, financial stability, workforce profile, and culture.

What should I do if I’m not sure about my further actions?

Employees should follow company guidelines with regard to the type and amount of eligible expenses. They should keep all receipts and attach them to the reimbursement claim. And, they should be aware that unreimbursed employee expenses can no longer be deducted as itemized expenses on their tax return.

Ines Zemelman, EA
Founder of TFX