Employee Expense Reimbursements
Effective January 1, 2018 the itemized deduction for employee business expenses was repealed. But an IRC §62 and Reg. 1.62-2 fully accountable employee expense reimbursement plan can be fully deductible by the employer.
The plan may choose which employees to include and which to exclude from getting reimbursements. While wages may be somewhat lower once an employee no longer needs to pay these expenses out of his own pocket without reimbursement, those wages must not be dropped dollar-for-dollar depending on the amount of reimbursements made. Any reimbursements for equipment must result in the employer getting ownership of that equipment.
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Unreimbursed Employee Expenses
Starting 2018 you can no longer claim a deduction for unreimbursed employee expenses unless you fall into one of the following categories of employment, or have certain qualified educator expenses.
- Armed Forces reservists.
- Qualified performing artists.
- Fee-basis state or local government officials.
- Employees with impairment-related work expenses.
Unreimbursed employee expenses for individuals in these categories of employment are deducted as adjustments to gross income. Qualified employees listed in one of the categories above must complete Form 2106 to take the deduction. Certain qualified educator expenses are also deducted as an adjustment to gross income but you are not required to complete Form 2106.
You can deduct only unreimbursed employee expenses that are:
- Paid or incurred during your tax year,
- For carrying on your trade or business of being an employee, and
- Ordinary and necessary.
An expense is ordinary if it is common and accepted in your trade, business, or profession. An expense is necessary if it is appropriate and helpful to your business. An expense doesn’t have to be required to be considered necessary.