Paul L. Caron

Tuesday, April 7, 2020

WSJ: The Tax Consequences Of Working From Home During COVID-19

Wall Street Journal Tax Report, Millions Are Suddenly Working From Home. Can They Claim a Tax Break?:

IRS CovidIf you’re one of millions of Americans who are now working from home instead of the office because of the coronavirus pandemic, count yourself lucky: you aren’t sick and you have a job.

Still, both you and your employer may be wondering whether your remote work qualifies for any tax breaks. Have you bought a desk, a better chair or new computer equipment? Can you take a tax deduction on those improvements, as well as the increased utility costs needed to power a new home-office set up?

The short answer is no, the employee can’t take these deductions—but the employer often can. As part of the 2017 tax overhaul, Congress nearly doubled the standard deduction and repealed some specific write-offs on Schedule A. One was a partial deduction for unreimbursed employee expenses such as a home office or union dues.

But employers can claim these deductions, based on reimbursements to the worker. The good news for workers is that the breaks can help employees with a range of pandemic expenses and the payments don’t count as compensation, either for income or FICA taxes. ...

A simple way for many employers to help employees who have costs from working at home due to the pandemic is to reimburse them under Section 139 of the federal tax code. This law passed in the wake of the 9/11 terrorist attacks and allows reimbursements or payments for “reasonable and necessary personal, family, living or funeral expenses” due to an eligible disaster.

Note that this law allows deductions for payments of “reasonable” expenses. That seems intended to be more generous than “ordinary” expenses, the term elsewhere in the law. ... It could include, say, full reimbursement of expenses for child care as well as for a computer or additional utility costs.

Under Section 139, disaster payments can be tax-free to workers and deductible by the company. Shareholders who are also employees of an S or C Corporation can qualify for them as well. Directors and partners may be eligible for these payments, although the law isn’t clear.

Unusually for the tax code, Section 139 cuts red tape. Payments don’t have to be included on a worker’s W-2 tax form, and the company doesn’t have to document actual expenses as long as the payments are expected to be close to them. Complex employee-benefits rules about which workers get what benefits don’t apply, either.

Until this week, the main caveat for employers hoping to use Section 139 was that, for technical legal reasons, it might not apply to payments or reimbursements due to coronavirus expenses. However, on March 31, the Internal Revenue Service appeared to affirm that Section 139 can apply to coronavirus payments in its guidance on payroll tax credits. The statement was included as part of an answer to question No. 58 in a list of frequently asked questions posted online.

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Need to also consider whether having employees working from home located in another state snares the employer into that states tax net.

Posted by: Lenny | Leonard M Fuld | Apr 8, 2020 5:09:51 AM