The Rules Employers Must Know for Reimbursing Remote Workers by Adam Cohen, CPA
Posted on July 15, 2021
by
Adam Cohen
Whether employers welcome staff back to their offices or allow the continuation of remote-work arrangements, they must be prepared to address a myriad of tax issues, including employee expense reimbursement requirements.
Generally, employees are not entitled to reimbursements for commuting expenses they incur for travel between their homes and their offices or other primary places of business. However, this is not the case when employees establish their homes as their permanent offices. Under those circumstances, employees’ residences essentially become their tax homes, and they may be reimbursed by employers for “business travel expenses,” including mileage, parking fees and tolls, incurred when shuttling between their homes and other job-related locations.
It is important to note that eligibility for commuting expense reimbursement applies only to those employees who commit to working from home full time, and it does not matter whether the employer’s office is still closed or back open. If an employee merely takes advantage of relaxed work-from-home (WFH) policies and works from home “occasionally,” the employer would be required to reduce from the total reimbursed amount all of the employee’s mileage for business travel that originated at the employee’s’ residence. Under all circumstances, employers and employees should keep meticulous records and maintain copies of receipts. When employees do not provide proof of commuting expenses, the reimbursements they receive will be treated as taxable income to the employees.
Employers may also want to consider that under existing tax law, W-2 employees working from home may neither write off expenses unreimbursed by their employers nor may they claim deductions for the use of a home offices through 2025 even when the employees work from home full time. Rather, the home office deduction is only available to independent contractors and self-employed individuals or small business owners that use a portion of their homes as their principal place of business where they exclusively conduct “administrative or management activities.”
With this in mind, employers may consider updating some of their policies concerning expenses for permanent WFH employees. For example, employers may choose to provide workers with the equipment needed to work from home as productively as they would from a business office, including a second computer monitor, an ergonomic desk chair and/or a Bluetooth telephone headset. They may also expand their current list of reimbursable expenses to include all or a portion of the costs WFH employees can attribute to business use of personal assets.
About the Author: Adam Cohen, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where he works with closely held businesses and non-profit charities, hospitals and family foundations to maintain tax efficiency while complying with federal and state regulations. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or info@bpbcpa.com.
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