If you were an employee who was used to deducting your unreimbursed employee business expenses (EBE), you might have been unpleasantly surprised while preparing your 2018 federal tax return when you realized this deduction had gone away. For many employees, this ability to deduct employment-related expenses that were not reimbursed by your boss was a godsend, reducing your tax liability. But then Congress suspended the deduction for employee business expenses for tax years 2018 through 2025 as part of the Tax Cuts and Jobs Act of 2017.
However, that doesn’t mean the deduction has gone away completely. Many of the states refused to enact this part of the TCJA into their own law, so even if you cannot deduct your expenses for your federal return, you may still be able to deduct them for your state return. If you’re not sure what your state’s rules are, you can find out by visiting your state’s tax department website, or by calling them.
And depending on the work you do, you may still have a deduction. Some occupations were always able to deduct employee expenses directly from their gross income rather than as itemized deductions. This includes performing artists, “statutory” employees, fee-based government officials, and members of the National Guard or Reserve. Teachers are also allowed to deduct up to $250 in out-of-pocket expenses incurred in purchasing books, supplies, and other materials used in their classroom, although they can no longer deduct any excess over that amount.
Of course, there are conditions that need to be met to claim expenses even if you work in one of these jobs. Performing artists may only take the deduction for EBE if they render performing arts services for at least two employers during the year, their related expenses exceed 10% of their income received from those services, and they have adjusted gross income of $16,000 or less. Fee-based government officials are people who perform services as an employee of a state or local government but are paid, at least partially, on a “fee basis” rather than with a salary or wages. For example, a justice of the peace who performs weddings three days a week at city hall and is paid a flat rate per ceremony would be a fee-based government official. National Guard and Reserve members can deduct only their travel expenses paid when they are required to travel more than 100 miles from home in connection with their service. This includes hotels and meals (up to the federal per diem rate), as well as car expenses calculated using the standard mileage rate, parking fees, ferry expenses, and tolls. If they are not 100 miles from home, they cannot claim their travel expenses.
Are you a statutory employee? A statutory employee must be in certain occupations specified in the law, hence the term statutory, and generally operate independently from their employer’s direction, so most employees do not meet this standard. The list of such employees includes full-time traveling salespersons who solicit orders from wholesalers, restaurants, or similar businesses and who are selling them items used in the buyer's business; full-time insurance agents selling policies or annuities for only one insurance company; or agent-drivers or commission-drivers engaged in distributing meat, vegetables, baked goods, non-milk beverages, or laundry and dry-cleaning services. Lastly, it may also be a home worker performing work with materials provided by the employer. If you think you may be qualified, check your Form W-2 ─ the statutory box should be checked in Box 13.
What is a poor employee to do if they don't meet an exception? If you have the option in your work, you might want to talk to your boss about the costs you are incurring and see if a reimbursement plan can be worked out. But be careful – depending on how your company sets up the reimbursement plan, it may be considered a “non-accountable” plan, in which case the reimbursement will be treated as wages to you, and you still won't be able to deduct the expense to offset it. In fact, you may want to check your paycheck just to make sure this isn’t happening already! If your state is one of the ones that still allows you to deduct the employee business expenses, make sure you keep records of the expenses and claim them on your state return, even if you can't claim them on your federal return.