Tax Act Tip: Employee Expense Rules Have Changed

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Tax Act Tip: Employee Expense Rules Have Changed

Many things are changing or going away due to the tax reform laws implemented this year. One major change is an employee’s ability to deduct unreimbursed expenses related to their job.

Farewell to miscellaneous itemized deductions

The deduction for unreimbursed employee expenses was among the qualified 2-percent miscellaneous itemized deductions eliminated by the Tax Cuts and Jobs Act (TCJA). This could be a blow for employees who had counted on it to deduct unreimbursed expenses for such things as work-related meals, entertainment, gifts, lodging, tools, supplies, dues, licensing fees, work clothes and work-related education.

A win-win solution

If you are an employee who has used this tax deduction, here are some tips to minimize its loss:

    • Determine the impact. Look over your past tax records to plan how much you expect to pay in unreimbursed work expenses. Then think about what the tax deduction was worth to you. Use this information to make an informed decision about next steps.


    • Discuss the situation with your employer. Talk to your employer about how this change will effect you, if the loss of this deduction is a hardship. There may be ways for them to help.


    • The win-win. Ask your employer to think about reimbursing you for your work-related expenses directly. Your employer can probably deduct those expenses from their business return without increasing your taxable income. This will save them tax dollars compared to the cost of raising pay to indirectly compensate you for your expenses.


If you are an employer, talk to your employees about their unreimbursed expenses now that the tax laws have changed. If you want to reimburse their qualified business expenses, make sure your reporting adheres to IRS accountable plan rules so that your reimbursements are deductible as a business expense and do not add to your employees’ incomes.