Tax Considerations for At-Home Workers

COVID-19 has created an unusual working environment this year. It began with forced shutdowns, leaving many employees furloughed or out of a job altogether. It has since developed into an accepted culture of at-home employees, Zoom meetings, and other ad hoc solutions.

Gig economy workers may have been ahead of the game on working from home, but a lot of these solutions are now commonplace for even the most traditional employees. The tax implications, however, continue to evolve.

It seems the rules and benefits differ greatly, depending on whether you’re an employee or independent contractor.

Unfortunately, employees lost the ability to deduct expenses related to maintaining a home office at the end of 2017. In this new culture, many employees now working from home may need to make some purchases to make their home more workable. Lacking income tax deductibility for these expenses, employees find themselves in one of three situations, each with its own financial and tax implications:

  1. Their employer provides for them – “Pack up your desk and go home.” This could include such items as computer monitors, printers, supplies, and sometimes even the desk itself. Usually these will be considered “de minimus fringe benefits” and not be taxable to the employee, yet still deductible for the employer.
  2. Their employer reimburses them – “Buy what you need and we’ll pay you back.” Similar to the first situation, the reimbursement won’t be taxable income to the employee in most situations. However, employers should have an “accountable plan,” that is, clear guidelines of what qualifies for reimbursement.
  3. They buy what they need but do not receive reimbursement. Sadly, in this situation, no federal tax benefit currently exists.

Independent contractors fare a little better in this new environment. For one, they operate more like an employer than an employee in that many home office expenses are already deductible (home office deductions are subject to very specific IRS guidelines and requirements). Further, in most cases, independent contractors have no preconceived expectation of reimbursement.

Tax rules vary greatly depending on your particular situation, so please don’t jump to any conclusions about the deductibility of an expense. Allow our tax professionals to review your situation with you and provide current, specific guidance tailored specifically to you. Contact us to schedule a consultation today.

We can schedule a Zoom call so you can speak to us directly from your new home office!