Topic Number: 514 - Employee Business Expenses
If you're an employee, you may be able to deduct your work-related expenses as an itemized deduction (subject to limitations) on Form 1040, Schedule A (PDF), Itemized Deductions. Additional information on this subject can be found in the Form 1040, Schedule A (PDF). Also, you may refer to Topic No. 511 for additional information on business travel expenses.
Although commuting costs aren't deductible, some local transportation expenses are. Deductible local transportation expenses include the ordinary and necessary expenses of going from one workplace (away from the residence) to another. If you have an office in your home that you use as your principal place of business for your employer, you may deduct the cost of traveling between your home office and work places associated with your employment. Refer to Topic No. 509 for information on home offices. You may deduct the cost of going between your residence and a temporary work location outside of the metropolitan area where you live and normally work. If you have one or more regular work locations away from your residence, you may also deduct the cost of going between your residence and a temporary work location in the same trade or business within your metropolitan area. For information on transportation expenses related to your car, refer to Topic No. 510.
Business entertainment expenses and business gift expenses may be deductible but subject to certain limits. For information on business entertainment expenses, refer to Topic No. 512. For additional information on business expenses, refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses.
You must keep records to prove the expenses you deduct. For general information on recordkeeping, refer to Topic No. 305.
If your employer reimbursed you or gave you an advance or allowance for your employee business expenses that's treated as paid under an accountable plan, the payment shouldn't appear as income on your Form W-2 (PDF), Wage and Tax Statement. You don't include the payment in your income, and you may not deduct any of the reimbursed amounts.
To be an accountable plan, your employer's reimbursement or allowance arrangement must include all three of the following rules:
- You must have paid or incurred expenses that are deductible while performing services as an employee
- You must adequately account to your employer for these expenses within a reasonable time period, and
- You must return any excess reimbursement or allowance within a reasonable time period
These rules are discussed in greater detail in Publication 463, Travel, Entertainment, Gift, and Car Expenses.
If your employer's reimbursement arrangement doesn't meet all three requirements, it's a nonaccountable plan and the payments you receive should be included in the wages shown on your Form W-2 (PDF). You must report the payments as income, and you must complete Form 2106 (PDF), Employee Business Expenses, or Form 2106-EZ (PDF), Unreimbursed Employee Business Expenses, and itemize your deductions to deduct your employee business expenses. See Publication 463 for detailed information on your employer's reporting requirement for business expenses and how you're required to report these expenses on your tax return.
If your employer reimbursed you for travel or transportation under an accountable plan but at a per diem or mileage rate that exceeds the federal rate, your employer should include the excess in the wages on your Form W-2. Box 12 of your Form W-2 should report the amount up to the allowance. If your actual expenses exceed the federal rate, you may itemize your deductions to deduct the excess. For information about the federal per diem rates, refer to Per Diem Rates and for information regarding mileage rates, refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses.
Generally, you must use Form 2106 or Form 2106-EZ to figure your deduction for employee business expenses and attach it to your Form 1040 (PDF), U.S. Individual Income Tax Return. You then take the deductible expenses on Form 1040, Schedule A (PDF), as a miscellaneous itemized deduction subject to the 2% of adjusted gross income limit. Topic No. 508 and Publication 529, Miscellaneous Deductions, also discuss the 2% limit and explain some of the other expenses that are deductible as employee business expenses.