Teleworkers may leave the office behind, but they still have to deal with taxes. In this chapter, we’ll look at how your tax life changes when you’re an at-home employee. In some ways, much remains the same. Your employer continues to deduct income taxes and Social Security from your paycheck. But there are important differences as well—like tax deductions you can take for home office expenses and unreimbursed job expenses.
This chapter covers tax information for at-home employees, not freelancers. For information about tax issues related to freelancers.
Paying for Your Work-Related Expenses
As a work-at-home employee, you will no doubt have some job-related expenses that you will want your employer to pay for. These expenses might include costs for items such as professional dues, supplies, a computer (possibly), and other work-related necessities. Exactly which costs your employer will cover will depend on your circumstances and
what you negotiated as part of your telework arrangement
However, in addition to deciding which expenses your employer will cover, you must also figure out how your job-related expenses will get paid. Basically, there are three ways you can pay these costs and each of the arrangements has significant tax consequences—some more favorable to you than others. It’s important to understand your choices
and, in some cases, the rules you must follow.
Basically, there are three ways you can pay these costs:
- Your employer can pay the expense directly
- You can pay them and get reimbursed by your employer, or
- You can pay them and deduct the cost.
Having your employer pay directly is always best. Use a company credit card or have your employer billed directly for the expense.
If you do pay for something out of your own pocket, have your employer reimburse you. As long as the expenses are work-related and you can properly document them, these reimbursements are not taxable income to you. Nor should they be included in the W-2 form your employer files with the IRS showing how much you were paid for the year. Your employer, meanwhile, gets to deduct these reimbursements as a business expense.
Some teleworkers get lazy about putting in for reimbursements, figuring that they’ll just take a tax deduction for the expense. Don’t do this! If your employer’s policy is to reimburse you for these expenses, but you fail to claim them, you won’t—repeat, you will not—be allowed to deduct them from your taxes. You’ll be out-of-pocket for the whole
payment you made.
Some teleworkers get lazy about putting in for reimbursements, figuring that they’ll just take a tax deduction for the expense. Don’t do this! If your employer’s policy is to reimburse you for these expenses, but you fail to claim
them, you won’t—repeat, you will not—be allowed to deduct them from your taxes. You’ll be out-of-pocket for the whole payment you made.
If your employer won’t reimburse you for work-related expenses, then you can deduct your job expenses when you
file your personal income tax return. But a deduction lets you recoup only part of the expense. For example, if you spend $1,000 on a computer that you’re going to use exclusively for business and deduct it as an unreimbursed
job expense, you’ll get at most a $1,000 deduction. If you’re in the 28% tax bracket, you’ll save $280 on your federal income tax. The computer ends up costing you $720. If, on the other hand, your employer had been willing to reimburse you for the $1,000, the computer would have cost you nothing, because the $1,000 is not taxable income.