Are Clients Working Remotely? Some Tax Implications If an Executive Is Working from Home
The increase in remote working has both expected and surprising tax implications. One of the anticipated tax implications is that the expenses of working from home or of maintaining a home office are not presently deductible for most employees due to the TCJA. Fortunately, the TCJA’s limitation on the employee business expense and home-office deductions is set to expire in 2025. So, after that tax year, expenses for working from home will again be deductible for many employees. Nevertheless, self-employed individuals and independent contractors still can deduct their business expenses, including those related to home offices.
For some employees, there is a possible way around the TCJA’s suspension of the itemized deduction for employee business expenses. This involves having an employer adopt an accountable plan for the purpose of reimbursing employees for expenses related to working from home. An accountable plan does not have to be nondiscriminatory and thus can be limited to a small number of employees. The adoption of an accountable plan allows the employee to avoid taxation on the reimbursement of all covered expenses and allows the employer to deduct the reimbursement payments.
Employees working from home for an employer whose office is in another state may be subject to some surprising and complex state income tax issues. Any employee who is required to, or is offered the opportunity to, work from home on either a full-time or part-time basis needs to evaluate whether working from home for an extended period of time will affect their state and local income tax liabilities.
This means that financial service professionals need to be prepared to address the financial and tax implications of working remotely.