Tax Act Tip: Employee Expense Rules Have Changed
One of the things that’s going away under the new tax reform laws implemented this year is an employee’s ability to deduct unreimbursed expenses related to their job.
Farewell to miscellaneous itemized deductions
The deduction for unreimbursed employee expenses was among the qualified 2-percent miscellaneous itemized deductions that were eliminated by the Tax Cuts and Jobs Act (TCJA) passed in late 2017. This could be a blow for employees who had relied on it to deduct unreimbursed expenses for such things as work-related meals, entertainment, gifts, lodging, tools, supplies, professional dues, licensing fees, work clothes and work-related education.
A win-win solution
If you are an employee who has used this tax deduction, here are some tips to minimize its loss:
- Determine the impact. Review your past tax records to help estimate how much you expect to pay in unreimbursed work expenses and what the tax deduction was worth to you.
- Discuss the situation with your employer. If the loss of this deduction is a hardship, talk to your employer about how you will be affected.
- The win-win. Ask your employer to consider reimbursing you for your work-related expenses directly. Your employer can probably deduct those expenses from their business return without increasing your taxable income. This will save them tax dollars when compared with the cost of raising your pay in order to indirectly compensate you for your unreimbursed expenses.
If you are an employer, consider talking to your employees about their unreimbursed expenses now that the tax laws have changed. If you wish to reimburse their qualified business expenses, make sure your reporting adheres to IRS accountable plan rules so that your reimbursements are deductible as a business expense and do not add to your employees’ incomes.