The Tax Cuts and Jobs Act now in effect no longer allows for employee home office deductions in 2018. This is a significant tax change that, according to the IRS, adds up to billions in increased taxes for tens of millions of taxpayers.
I suggest that employers who require employees to work from home should set up an ‘accountable plan’ so that employees can pay for these expenses on a tax-free basis and not as an after-tax expense from net wages. The earlier in 2018 that this is considered, the greater the possible tax savings.
As an example: assume an employee with $100,000 gross wages formerly deducted $5,000 in home office expenses in order to reduce here income tax expense by $2,000 per year. In 2018 this deduction is no longer allowed. As an alternative, the employer could arrange to pay the employee $95,000 wages plus a $5,000 home office expense reimbursement through an accountable plan. The employer and the employee both save in taxes. The employer’s saving might also include a reduction in other taxes and wage-based expenses for a total savings even larger than previously available through the employee’s home office deduction.
I would be pleased to speak with an employer representative about the design, implementation and administration of this strategy. The discussion typically starts with a projection of costs and benefits for both the employer and employee and then moves to consideration of how to best incorporate the new feature into the existing payroll accounting system.