Nov. 30, 2020

This paid piece is sponsored by Eide Bailly LLP.

There is no doubt that COVID-19 has changed the way we do business. One of the more universal changes is an increase in remote working. This raises questions about the deductibility of expenses related to employees working from home.

Remote workers can’t deduct unreimbursed home office expenses

As a general rule, an employee working from a location other than the employee’s office on employer business does not get to deduct unreimbursed home office expenses related to that work.

Before 2018, that was not necessarily the case. Unreimbursed employee business expenses, after some adjustments, could be deducted as an itemized deduction. But the Tax Cuts and Jobs Act put those rules on hold for years 2018 through 2025 for most employees. There are some special employees who will still qualify, but for most employees, they need a Plan B. This probably will require an employer to implement an accountable reimbursement plan for employees incurring additional qualifying business expenses because of their remote work location.

Expenses that qualify for reimbursement when working remotely

While some employees may think otherwise, not all remote work expenses that may be incurred will be eligible for reimbursement. Expenses that qualify for reimbursement must be “ordinary” and “necessary” to the work being done for the employer.

• Ordinary indicates that most employers in the same line of work will have the need to incur the same type of expenses.
• Necessary, as the word implies, would say the expense has to be incurred by employers doing the same type work or job.

However, the newest technology desk chair an employee just had to have to be comfortable in their remote location probably will not meet the requirements, depending on how your employer defines reimbursable items in its reimbursement plan, including “accountability” for the reimbursement.

What is an accountable plan? 

A plan that meets the requirements of an accountable plan allows employee reimbursement of business expenses to not be considered as taxable income. To be an accountable plan, the plan must follow IRS guidelines, including:

• Business-related expenses are timely claimed for reimbursement.
• Any excess reimbursement is returned timely.
• Accurate reporting is documented.
• Appropriate receipts are provided to substantiate the claimed reimbursement.

An interesting point about accountable reimbursement plans is that the nondiscrimination rules required for employee benefit plans are not applicable to accountable reimbursement plans. As a result, there can be different terms, or plans, applicable for different employees or a plan for the owner but none for other employees.

In addition, while a written document isn’t required, if different plans or arrangements are to be made with different employees, a written plan would be the best policy. This eliminates confusion in application should either the employer’s or employee’s tax returns come under an IRS examination.

There are other areas to consider with remote working too. Here’s what you need to know.