Can I Deduct Unreimbursed Employee Expenses?
The Tax Cut and Jobs Act made many sweeping changes to the U.S. tax system. One of the biggest changes under this new law was the elimination of the deduction for unreimbursed employee business expenses beginning with 2018 tax returns. This means employees will no longer be able to offset their taxable income with employee business expenses they may incur throughout the year.
Prior to 2018, an employee could deduct unreimbursed job expenses to the extent these expenses, along with certain other miscellaneous expenses, were more than 2% of their adjusted gross income. The employee would need to be eligible to itemize to deduct these expenses.
However, with tax reform, all miscellaneous “2%” expenses, including unreimbursed employee expenses are not allowed between 2018 and 2025. Expenses such as union dues, work-related business travel, or professional organization dues are no longer deductible, even if the employee can itemize deductions.
Self-employed taxpayers may continue to deduct ordinary and necessary business expenses against self-employment income on Schedule C or Schedule F.
Exception to Unreimbursed Business Expenses
It is important to note that this change under the TCJA does not have an effect on the unreimbursed business expenses that non-wage-earning self-employed individuals (e.g., those individual filing Schedule C or Schedule F) are allowed to claim to offset their income subject to the self-employment tax.
Previous Business Expense Deductions Rule
Prior to 2018, employees were allowed to claim deductions for their unreimbursed business expenses as itemized deductions on their tax return. This allowed employees to reduce their tax liability on account of having several common business tax deductions, including the following:
- Many other business-related items
Under these older rules, an employee’s tax deduction for their unreimbursed employee business expenses could only be claimed if they itemized their deductions (as opposed to claiming the standard deduction), and was only allowed to the extent the total of these expenses exceeded 2% of their adjusted gross income (AGI). The TCJA not only eliminated this deduction for unreimbursed employee business expenses, but also eliminated all other miscellaneous itemized deductions subject to the 2% limit.
Will Business Expense Deductions Return?
The elimination of the deduction for employee business expenses under the TCJA is not permanent, as the deduction will be reinstated beginning in 2026.
Navigating Employee Business Expenses
Figuring out if employee business expenses are deductible can be confusing – which is why we are here to help. Whether you make an appointment with one of our knowledgeable tax pros or choose one of our online tax filing products, you can count on H&R Block to maximize your business deductions.
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