Yes, but with significant limitations. As a result of the Tax Cuts and Jobs Act (TCJA) of 2017, most employees cannot deduct unreimbursed employee expenses on their federal income tax returns for tax years 2018 through 2025. However, certain categories of employees may still be eligible to claim these deductions.
Current Tax Treatment of Unreimbursed Employee Expenses
General Rule:
- Non-Deductibility for Most Employees: The TCJA suspended all miscellaneous itemized deductions that were subject to the 2% of adjusted gross income (AGI) floor. This suspension applies to unreimbursed employee expenses, meaning that most employees cannot deduct these expenses during the suspension period.
Authoritative Source:- Internal Revenue Code (IRC) § 67(g): This section states that no miscellaneous itemized deductions shall be allowed for any taxable year beginning after December 31, 2017, and before January 1, 2026.
Explanation:
- Prior to the TCJA, employees could deduct certain unreimbursed work-related expenses if they itemized deductions and if those expenses exceeded 2% of their AGI.
- Examples included union dues, tools, job travel, and required uniforms not suitable for everyday wear.
- The suspension means these deductions are not available for tax years 2018 through 2025.
Exceptions to the General Rule
Certain employees can still deduct unreimbursed employee expenses “above the line,” reducing their gross income:
- Armed Forces Reservists
- Who Qualifies: Members of a reserve component of the Armed Forces who travel more than 100 miles from home and stay overnight as part of their duties.
- Deduction Allowed: Unreimbursed travel expenses can be deducted.
Authoritative Source:- IRC § 62(a)(2)(E): Allows an above-the-line deduction for travel expenses of Armed Forces reservists.
- Qualified Performing Artists
- Who Qualifies: Performing artists with adjusted gross income of $16,000 or less (subject to inflation adjustments) who meet specific employment and expense criteria.
- Deduction Allowed: Unreimbursed employee expenses related to performing arts.
Authoritative Source:- IRC § 62(b): Defines qualified performing artists and allows the deduction.
- Fee-Basis State or Local Government Officials
- Who Qualifies: Officials compensated on a fee basis.
- Deduction Allowed: Work-related expenses can be deducted.
Authoritative Source:- IRC § 62(a)(2)(C): Permits deductions for fee-basis government officials.
- Impairment-Related Work Expenses
- Who Qualifies: Employees with physical or mental disabilities that limit major life activities.
- Deduction Allowed: Expenses necessary for the taxpayer to work can be deducted as itemized deductions and are not subject to the 2% AGI floor.
Authoritative Source:- IRC § 67(b)(6): Exempts impairment-related work expenses from the suspension.
State Tax Considerations
- State Variations: Some states do not conform to federal tax law changes and may allow deductions for unreimbursed employee expenses.
Recommendation:- Check State Tax Laws: Consult your state’s tax regulations or a local tax professional to determine if you can deduct these expenses on your state return.
Self-Employed Individuals
- Deduction Allowed: Self-employed individuals, including independent contractors and gig economy workers, can deduct ordinary and necessary business expenses on Schedule C (Form 1040).
Authoritative Source:- IRC § 162(a): Allows deductions for ordinary and necessary expenses paid or incurred in carrying on a trade or business.
Key Takeaways
- Most Employees: Cannot deduct unreimbursed employee expenses on federal income tax returns for tax years 2018 through 2025 due to the TCJA.
- Exceptions Exist: Certain categories of employees, such as qualified performing artists, Armed Forces reservists, fee-basis government officials, and individuals with impairment-related work expenses, may still qualify.
- State Taxes May Differ: State tax laws may allow these deductions even if federal law does not.
- Self-Employed Individuals: Continue to deduct business-related expenses as usual.
Recommendations
- Consult a Tax Professional: Given the complexity and potential for changes in tax law, consult a CPA or tax advisor for personalized advice.
- Stay Informed: Keep abreast of legislative changes that may affect the deductibility of unreimbursed employee expenses after 2025.
Additional Resources
- IRS Publications:
- Publication 529: Miscellaneous Deductions
- Provides detailed information on which expenses are deductible.
- IRS Publication 529
- Publication 463: Travel, Entertainment, Gift, and Car Expenses
- Explains what travel expenses are deductible and how to report them.
- IRS Publication 463
- Publication 525: Taxable and Nontaxable Income
- Covers various types of income and explains whether they are taxable.
- IRS Publication 525
- Publication 529: Miscellaneous Deductions
- IRS Forms:
- Form 2106: Employee Business Expenses
- Used by qualified employees to deduct unreimbursed business expenses.
- IRS Form 2106
- Form 2106: Employee Business Expenses
Disclaimer: The information provided is for general informational purposes and should not be considered legal or tax advice. Tax laws are complex and subject to change. For advice specific to your situation, consult a qualified tax professional or refer to official IRS resources.