AccountingSmall BusinessTax Planning

Home office deduction for employees in 2018

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.

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