How Working From Home Will Change 2020 Tax Deductions
Will working from home change tax deductions? Many employees working from home ask this question in view of the expenses now incurred in setting up a home workspace. But, despite the prevailing circumstances causing many to work from home, remote employees may not be eligible for the tax deductions they think.
Unless otherwise stated in the periodic tax law amendment, remote employees can not claim tax deductions similar to self-employed individuals working from home.
But, while employees working from home cannot access home office tax deductions, they are still eligible for certain WFH allowances from their employers. Each employee will need to keep proper records of work-related expenses to get reimbursement or other forms of allowance.
Working From Home When Self-employed vs. Remote Employees
The home office deduction is exclusive to self-employed people using their home as a workplace. Home office deductions cannot be claimed by employees working from home.
While tax laws regarding this may change, as of 2020, remote employees cannot claim tax deductions for expenses used to set up and maintain their work area.
For self-employed people, tax deductions on home office, internet & phone bills, health insurance, meals, and travels can be claimed since they own and run the business.
Employer Aid For Remote Employees
Since employees working from home are not eligible to claim these tax deductions yet they spend to set up the home workspace, the question is "is there a palliative to help with the burden"? Well, while not in the aspect of tax deductions, employers can still make arrangements in this regard.
Setting Up a Work Area
Employers are encouraged to look into having work areas set up for employees working from home. Typically, an employer sets up standard office space and puts all of the necessary equipment in place. Well, present circumstances have made this impossible. And the option available is to assist workers set up a home with the important tools.
Purchases may include desks, monitors, and subscriptions to internet services among other things. So while an employee may not enjoy tax deductions, the employer takes off the burden of extra expenses.
Employer Reimbursement Plans
It may be quite difficult to envision the total expenses an employee working from home will incur. Due to this, employers can create a reimbursement payment plan to repay employees whatever extra expenses they had relating to work. The arrangement is to be supervised to ensure accuracy and accountability since the reimbursement won't be taxed; it is an office expense repaid to an employee who has covered the cost temporarily. This is why employees must keep an accurate record of all extra expenses so that it can be delivered to the employer for the necessary next steps.
In 2020, with the present conditions that necessitate working from home, employees can reimburse employees under the disaster relief channel.
Extra Employee Payment
An extra payment plan may not need an employee to make substantiated claims of home office expenses to the employer. In this case, an employer simply pays an extra non-taxable allowance to cover such expenses.
Working From Home in a Different State
An interstate arrangement needs to be considered in order to avoid tax complications, since tax laws for remote workers vary in each state. In some states, tax laws for people working from home for a company in another region are different from other states. A few states mandate employers to cater to the expenses required to set up a home office.
Some states don't consider those that are working from home due to Covid as "physically working", while other states are silent on the matter. Overall, an employer must do due diligence to verify the requirements for each state if they have workers in differing states.
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