The answer to this question is going to depend on what is meant by “work,” not to the average person, but what is meant by “work” in the tax code. From a personal income tax point of view, the worker’s world is divided into two pools, those who are self-employed and those who are employed and have wages reported on Forms W-2. Each of these pools do of course have expenses to a greater or lesser extent, and both would like to deduct them.
So let’s discuss the self-employed first. If you are a sole proprietor and complete the Schedule C, then you may generally deduct your ordinary and necessary business expenses on the Schedule C, Profit or Loss From Business (based on the assumption, of course, that you can properly substantiate the expenses if called upon to do so by a taxing agency). If you are organized under another business form, then the business may deduct the ordinary and necessary expenses of operating or conducting that business.
But, if you have unreimbursed business expenses as an employee (what used to be known as “Employee Business Expenses” [EBE]), then those expenses are generally no longer deductible for the 2019 tax year on your federal tax return. In fact, they were not deductible in 2018, and will not be deductible through 2025. These expenses used to be summarized on Form 2106 Unreimbursed Employee Business Expenses and deducted on Schedule A Itemized Deductions to the extent that they and similar expenses exceeded 2% of the taxpayer’s adjusted gross income. Yes, it doesn’t seem fair that your employer can deduct the amounts they reimburse to you as a business expense, but you as an employee cannot deduct those same expenses. However, as we all know, the concepts of “fair” and “taxes” do not always go hand in hand.
If your EBE are reimbursed, that reimbursement may or may not be taxable to you. If you submit receipts to your employer, and they reimburse you the amount of the receipts, then that is known as an accountable plan and the reimbursements are not taxable income to you. However, if your employer grosses up your pay to provide income to help you cover your EBE, then that gross-up amount is taxable income to you. However, even though this gross-up is taxable income and intended as a general reimbursement, you may still not deduct the business expenses that are being covered through the gross-up.
Fortunately for some, there are a few exceptions to Employee Business Expenses being non-deductible in the tax years 2018 through 2025. If qualified, these folks can deduct some or all of their EBE from their income before calculating their adjusted gross income. Those who may be able to deduct their qualified EBE include:
- Qualified teachers can deduct up to $250 (currently) in out-of-pocket unreimbursed classroom expenses. These teachers include educators with more than 900 hours working at a school providing instruction in grades K through 12th grade.
- Reservists can deduct travel expenses if they must travel more than 100 miles from their home in performing their reservist duties. They are generally restricted to the federal per diem rates in calculating their EBE.
- Under certain conditions, Qualified Performing Artists may deduct their EBE. These conditions are they must have more than one employer, they must have at least $200 in wages, their expenses should be more than 10% of the gross income they earned from performing services, and their AGI before the deduction must be $16,000 or less.
- Fee-based government officials, that is officials who are paid by directly collecting fees and not by being paid a wage or salary, may also deduct the EBE which was incurred in connection with the fee-based activity.
There is also an exception for statutory employees who may deduct their expenses on a Schedule C. If you don’t know if you are a statutory employee, then you likely are not. But you can also check your Form W-2; if the box labeled “Statutory employee” in Box 13 is checked, then you are.
And lastly, you should be aware that not all of the states conform. That is, state rules can and do vary, so EBE may remain deductible on your state taxes even though they are not on your federal return. You can contact your state tax authority for more information.