Covid-19 and Taxes: Do Work-from-Home Professionals get Tax Deductions?

The pandemic (Covid-19)has ravaged the world, destroying lives and making people anxious and paranoid in its wake. It has also completely revamped the way people work, forcing them to adapt to a new normal. With more and more professionals working from home in the US, it is vital to clear the taxes scenario. If you work from home and build a paystub online, can you factor in any extra deductions? What if you are an employer whose workforce now works from outside the office? Let us discuss the key considerations a professional should know about in this changing world.

Can Employees get Deductions for Home Office Expenses?

When you work from home instead of an office, you incur several expenses outside your standard household budget. You require a working internet connection, office furniture such as a chair with a backrest and a desk, devices like printers and scanners, etc. These expenses come directly out of your wallet. Unfortunately, you cannot get tax deductions for them because of the new ‘Tax Cuts and Jobs Act (TCGA)’ implemented in 2018 by then-President Trump.

Before 2018, remote employees could claim tax deductions for expenses toward their home office. You could also get exemptions for a part of your internet and electricity bill. But currently, you won’t be eligible for any deductions for your home office unless the law changes.

Can Employees get Reimbursement for Extra Expenses?

Here comes the fantastic news: yes! While you will not get tax deductions for work-from-home spends, you can claim a reimbursement from your employer. To do this, you can share the receipts with your company. The payment you get will not be taxable.

If your company decides to give you the reimbursement as a stipend, it will be taxable. The extra payment shows up on your W-2 form and paystub.

Which Deductions can Self-Employed Professionals get?

If you are a freelancer, contractor, consultant, etc., you do get tax benefits. If you use a free paystub maker, you can add deductions for home office expenses, furnishings, utilities like electricity, etc. However, there are strict requirements for proving that you use your home office primarily for conducting business. It must be your prime place of work for conducting meetings, performing day-to-day operations, etc. Your average living room cannot count.

Will you pay Double Tax if you work from another state?

Ideally, no. You won’t have to pay more taxes if you are working from another state. It is common in the US for people from neighboring states to go and work in places like New York, Pennsylvania, and Boston. You can get credits for the tax you are paying to one state.

Many states in the US have agreements to let people get tax exemptions. The location from where you are working should have a reciprocal agreement with the state of your company. In the absence of such an agreement, you might have to pay double tax.

How can Employers help Remote Workers with Extra Expenses?

Some states like Iowa, Montana, and Pennsylvania have laws that make it necessary for employers to cover expenses involved with working from home. According to the Fair Labor Standards Act (FLSA), you cannot ask employees to incur work expenses if it would bring their pay below the minimum wage.

Moreover, if you are an employer or business owner, you may probably still be trying to adapt to the new landscape. Your employees working from home are trying to get accustomed as well. At this time, it is critical to work on employee engagement and boost the day-to-day environment in your virtual workspace. Here are a few ways to make things easier for your staff:

• Reimburse your team for home office expenses: Although working from home does not allow a full-time professional to claim tax deductions, you can directly reimburse them. If they are spending on a home office, they must ensure it meets the criteria of the IRS. You can pay them for utilities also. It depends on what percentage of the house their home office takes up. It is essential to be meticulous about this so that you can claim tax deductions on these payments.

• Distribute necessary equipment, facilities, etc., to your employees: As the employer, you can purchase requisite equipment for your workforce and then hand it out to them. You can easily deduct the expenditure as a business expense. It will be similar to receiving a tax deduction and be beneficial for both you and your staff.

• Hand out an allowance: Some employers choose to issue a stipend to their employees to assist them with extra expenses. It is an alternative to giving them the sum in one go. The allowance will be tax-deductible for you. However, it will show up in your employees’ paystubs and they will need to pay taxes on them. It is straightforward to get the check stubs to reflect this additional income if you use an online paystub generator. StubCheck.com offers enhanced paystub templates that have customizable entries for allowances, overtime pay, etc.

• Let employees claim disaster relief:  Since the federal government has declared Covid-19 a disaster, an employer can cover any expenses that an employee has incurred due to it. Section 139 of the US Internal Revenue Code mandates that these payments will not be taxable.  The costs covered under disaster relief include medical expenditure, childcare, transport, etc.

Now that we have broken down the taxes scenario for you while working from home, it should get easier to plan out your finances. Whether you are an employee or a business owner, you will have to grapple with the changes that Covid-19 has forced in the workspace. Keeping your head clear about tax deductions is a great start.