With many employees working from home in 2020, they may be disappointed to learn they cannot deduct any unreimbursed business expenses (i.e., home office utilities, office equipment, etc.) on their personal tax returns.  This is due to the 2018 tax law, which stated these types of deductions are non-deductible for W2 employees.

However, some employers are reimbursing their employees for these expenses.  To ensure these reimbursements are not taxable to the employee and deductible for the employer, an employer should use an accountable plan.  No IRS form must be completed to create an accountable plan, but it is recommended to prepare a written plan to meet required standards and clearly establish rules for employees.

Accountable plans must meet three basic standards:

• The reimbursed expenses must be connected to the business;
• The employee must substantiate the expenses (i.e., receipts, invoices) within a reasonable time period; and
• The employee must return any unspent money to the employer within a reasonable time period.

If any of these standards are not satisfied, the reimbursement plan is not considered to be accountable, and the amount intended as reimbursement will be compensation subject to payroll and income taxes to the employee.

The article below from the AICPA provides excellent information related to you as a W2 employee or as an employer.

As always, if you have further questions, please reach out to your tax advisor.

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