Employee Business Expenses is a tax form distributed by the Internal Revenue Service (IRS) used by employees to deduct ordinary and necessary expenses related to their jobs. Ordinary expenses are generally considered common and accepted in a particular line of business, while necessary expenses are those that are helpful in conducting business.
Starting in the tax year 2018, unreimbursed employee business expenses could no longer be claimed as a tax deduction for the majority of taxpayers. Currently, the only people who can use Form 2106 are Armed Forces reservists, qualified performing artists, fee-based state and local government officials, and employees with impairment-related work expenses. Prior to 2018, any employee with unreimbursed work expenses could use Form 2106 to claim those expenses as a miscellaneous itemized deduction.
Employee Business Expenses is a tax form distributed by the Internal Revenue Service (IRS) used by employees to deduct ordinary and necessary expenses related to their jobs.
⦁ Form 2106 is used by employees to deduct ordinary and necessary expenses related to their jobs.
⦁ This form is used by Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses.
Taxpayers used to have two options for claiming job-related expenses as a tax deduction. They could take this above-the-line deduction, or they could claim an itemized deduction for unreimbursed job expenses for W-2 income. Tax reform eliminated the itemized deduction option when the Tax Cuts and Jobs Act (TCJA) went into effect in 2018.
How to File Form 2106: Employee Business Expenses
⦁ There are two parts to Form 2106. Part I tabulates all employee business expenses and reimbursements. This part then calculates whether, and which, expenses were eligible for a tax deduction. These include vehicle expenses, parking, toll, transportation charges, and other business expenses. The filer also includes any reimbursements made by the employer.
⦁ Part II deals more specifically with vehicle expenses. Filers have two choices. They can use the standard mileage rate, which means multiplying the IRS mileage rate for the tax year by the number of business-qualifying miles driven. The mileage rate factors in gasoline and repair expenses, plus wear-and-tear on the average car. For 2021, it is set at 56 cents per mile (down from 57.5 cents in 2020).4
⦁ The second method is to calculate actual expenses. These include gasoline, oil, repairs, insurance, registration, and depreciation which is factored with the use of a table in the ⦁ instructions. You are not able to deduct interest on car loans. There are also limits on car valuations. Whether you used standard mileage or actual expenses, expenses incurred commuting to and from work are not considered eligible business expenses.
Who Can File Form 2106: Employee Business Expenses?
⦁ According to the IRS, only the following taxpayers can use Form 2106:
⦁ Armed Forces reservists
⦁ Qualified performing artists
⦁ Fee-basis state or local government officials
⦁ Employees with impairment-related work expenses
⦁ Prior to 2018, any employee with unreimbursed work expenses could use Form 2106 to claim those expenses as a miscellaneous itemized deduction
In addition to the parameters mentioned above, if your employer will not reimburse job-related expenses, then you are eligible to file Form 2106. While those who are self-employed or independent contractors do qualify for deductions, IRS Form 2106 is not the appropriate document for them.
Purpose of Form
⦁ Use Form 2106 if you were an Armed Forces reservist, qualified performing artist, fee-basis state or local government official, or employee with impairment-related work expenses. Due to the suspension of miscellaneous itemized deductions subject to the 2% floor under section 67(a), employees who do not fit into one of the listed categories may not use Form 2106. See the flowchart below to find out if you must file this form.
⦁ An ordinary expense is one that is common and accepted in your field of trade, business, or profession. A necessary expense is one that is helpful and appropriate for your business. An expense doesn’t have to be required to be considered necessary.
If you are not a member of the Armed Forces reserves, a qualified performing artist, a fee-basis state or local government official, or an employee with impairment-related work expenses, and receive reimbursements in excess of your expenses from your employer’s nonaccountable plan, the excess reimbursements should be included in your wages (in box 1 of Form W-2) and reported on line 1 of your Form 1040 or 1040-SR.
You can’t deduct expenses for travel (including meals unless you used the standard meal allowance), gifts, or use of a car or other listed property unless you keep records to prove the time, place, business purpose, business relationship (for gifts), and amounts of these expenses. Generally, you must also have receipts for all lodging expenses (regardless of the amount) and any other expense of $75 or more.
Reimbursements ensure that you’re compensated for costs that came out of your pocket. You should get reimbursed for qualifying expenses if your employer didn’t reimburse you or if they didn’t completely reimburse you. You can also claim deductions if you used your personal vehicle for work-related matters. Eligible car expenses include car insurance, maintenance, gas, and repairs. Other common expenses are:
Education, licenses, and certification costs
Tools and supplies necessary to complete work
If you’ve concluded that you may have made an error on your Form 2106, you may be at risk for fines and/or litigation by the IRS. Contact a tax services professional for tax relief help. They’ll work with you to identify any errors that have been made and create a relief plan if needed. Additionally, they’ll act as an intermediary between you and the IRS to iron out any issues as soon as possible. Completing your IRS Form 2106 may be a pain, but it isn’t impossible. Remember to take each step line by line, double-check all of your totals, provide evidence for each, and get professional help when needed.