Roughly a third of Americans are still working from home because of the pandemic, and many mistakenly believe they qualify for the home office deduction. Here’s everything you need to know if you work remotely.
Since the beginning of the COVID-19 pandemic, around a third of Americans have transitioned to working from home. This means more video conferencing via tools like Zoom and Google Meets, more informal work attire, and benefits like avoiding a long commute each morning. But many newly remote employees struggle with new technologies and are concerned about expenses like Wi-Fi, printer ink, and new devices used for their job.
While offsite workers have long taken advantage of the home office deduction, there’s now some confusion about who qualifies. Many individuals mistakenly believe they can now take the deduction since they’re doing all their work at home.
This home office deduction overview will cover:
- Who qualifies for the home office deduction?
- Other home office deduction requirements
- How the pandemic impacts the home office deduction
Who qualifies for the home office deduction?
It’s first important to note that the home office deduction cannot automatically be claimed by anyone who works at home. If you’re a regular employee, you probably won’t be able to claim it.
Before the 2018 Tax Cuts and Jobs Act was passed, the deduction could be taken by employees who were required by their employer to work at home, in many cases. But now, if you receive a W-2, you cannot claim the home office deduction at all.
Therefore, employees who have shifted to remote work usually cannot claim the home office deduction, even if they have a dedicated workspace in the home. However, some employers may offer reimbursement for home office expenses, so it’s always wise to work that out with managers.
Who is actually eligible for the deduction?
- Self-employed workers
- Independent contractors
- Some partners
If you own your own business, it doesn’t matter if you’re a homeowner or renter, as long as you have a home office that qualifies (more details on that below).
Other home office deduction details
If you meet the above eligibility criteria, you also have to make sure that your home office qualifies. Here are other requirements for the workspace:
- You must use the home office regularly and exclusively for business. This means that the space or room cannot double as a second bedroom or dining room, for example. The office doesn’t have to be a closed-off room.
- The office must be the principal place of business. This includes holding meetings with clients or patients in addition to conducting other daily work tasks.
There are a couple of methods you can use to calculate your deduction. Starting in 2013, the IRS offers a simplified option, which takes care of the calculation and allocation with a standardized method.
The regular method allows you to be more accurate, but it takes more recordkeeping and calculating. To get this number, you need to figure out the percentage of your home used as an office.
How the pandemic impacts the home office deduction
While more workers than ever before are using a home office, the COVID-19 pandemic didn’t change much about the home office deduction. It still only applies to self-employed workers and contractors—not W-2 employees.
The exception is for regular employees who also run a side business. Then, things get a little more complicated.
For example, you may usually use your home office exclusively for your own side business. But if you have started working from home for your regular job and use your same office for that work, you can no longer claim the home office deduction for your side business because it is not being used exclusively for that purpose.
Another potential change from the pandemic would be if you’re a partner in a business and you used to have a joint office that you don’t need anymore. Partners may qualify for the home office deduction as long as the space is the principal place of business, but these situations can be a bit more ambiguous and complex.
Still have questions? Hire a tax professional!
Even though W-2 employees may be working from home every day and have to foot the bill for Wi-Fi or office supplies, they’ll need to contact their employers about those issues. Unless you’re a self-employed worker, you cannot deduct home office expenses on your tax return.
If you’re still unsure about your deductible expenses or tax changes because of COVID-19, a CPA can ensure you’re doing everything correctly.
Provident CPA and Business Advisors stands ready to help you prepare for taxes this year. Contact our team today to get started or learn more.