How Working from Home Affects Income Taxes

Your company sent everyone home when the pandemic began in March 2020, and here you are, still working from home as tax time approaches in 2024.

Or maybe you just joined 30 million people the Bureau of Labor Statistics says work from home and don’t know if there are tax advantages gained by staying home. The answer may surprise you.

If you are working at home (or wish you were), you are out of luck at getting a tax break on any of it, unless you’re self-employed.

Anyone who filed taxes while working some or all of the time at home between 2021-2023, already knows that there are no tax breaks for unreimbursed work expenses like supplies, office furniture, soaring energy bills and all the other things you pay out of pocket to do your job.

If you’re new to working at home, this is your wakeup call.

Deductions for unreimbursed work expenses ended with the 2017 Tax Cuts and Jobs Act (TCJA), passed by Congress and signed by President Donald Trump. Tax laws have not made the pivot since then to reimburse employees for expenses their employers paid when they were working in an office.

“Employers can reimburse employees for some expenses, but very few have those benefit programs set up,” Beth Logan, a federally licensed tax professional with Kozlog Enterprises LLC, said.

If you’re self-employed and work at home, you can itemize work deductions, but it comes with complicated and strict requirements.

Can I Claim Working from Home on My Taxes?

The definition of an employee by the IRS, in simple terms, is that taxes, Medicare and Social Security are deducted from your paycheck. If you get a W-2 form at the end of the year, you’re an employee.

If you get a 1099 form, you’re self-employed.

Before the 2017 tax change, employees could deduct a wide range of unreimbursed work-related expenses from their taxes. Deductions included mileage, home office supplies, union dues, uniforms, internet, telephone, magazine subscriptions, meals, and many other work-related expenses.

Starting with the 2018 tax year, that went away.

“There are no special write-offs for you, even if you’ve invested in a sweet little home office set-up,” said Jim Pendergast, senior vice president of AltLINE Sobanco, a division of The Southern Banking Co. “The IRS tends to qualify any of these remote-employee office investments as ‘miscellaneous itemized deductions,’ which don’t net you any deductions.”

Before the 2017 tax change, taxpayers could also deduct their mortgage interest, state and local taxes and charitable donations. To itemize, rather than claim the standardized deduction, all expenses had to add up to more than 2% of the tax return’s adjusted gross income.

After the 2017 tax law, itemized deductions can only be taken if they are greater than the standardized deduction, which has gone up again. For those filing in 2024 for the 2023 tax year, the standardized deduction is $13,850 for single filers; $20,800 for head-of-household filers; and $27,700 for married people filing jointly.

Most people working at home likely have expenses well below those figures.

Self-employed workers, who are considered business owners by the IRS, can still itemize, and deduct their expenses, including their home office, mileage, office furniture, supplies, advertising, and marketing costs, even meals in some cases. But they must follow strict rules and pay a self-employment tax, which covers their contributions to Social Security and Medicare.

Can I Deduct My Home Office from My Taxes?

If you are an employee of a business, even if you work from home 100% of the time, you can’t deduct your home office from your taxes.

If you’re self-employed, you can deduct your office.

In fact, the home office deduction is the biggest tax option for self-employed workers, said Anna Barker, an attorney who advises clients on tax matters and founded LogicalDollar. The catch is the portion of your home must be “used exclusively and regularly for business purposes,” Barker said.

It’s not just a matter of setting up the laptop on the kitchen counter and calling it an office. The key word is “exclusively,” tax experts say.

“A guest bedroom doubling as a freelancer’s office doesn’t qualify, because it’s not a dedicated, exclusive area for business,” Pendergast said. “Neither does a photography studio in your den. The space and its items must be exclusively for professional use.”

The definition of “exclusive use” is strict, Logan, the tax accountant, said. “One famous case involved a person who had a room used exclusively for work, but the closet stored their out-of-season clothes,” she said. “Because the taxpayer had to pass through the office to get to the closet, the office was not considered exclusively for work. The deduction for that space was disallowed.”

I’m Self-Employed, How Do I Deduct My Home Office?

There are two methods by which self-employed workers can deduct their home office, as long as it’s exclusively used for work – the simplified method and the regular method.

Home Office Deduction Simplified Method

A simplified home office deduction claims $5 per square foot up to a maximum of 300 square feet, for a $1,500 deduction. This is good a good choice for those who don’t have a lot of business expenses that would add up to a greater deduction.

“It’s a good idea to enlarge your home office space up to the limit to get the full deduction,” Barker said.

Home Office Deduction Regular Method

The regular method deducts home office expenses based on the home’s square footage and is best for those with a lot of deductions. If the home office is 10% of the home’s square footage, deduct 10% of relevant home expenses. It’s a good idea to hire a professional to prepare your taxes if you use this method.

“Maintain detailed records of all of these expenses to justify what you’re claiming,” Barker advised.

I’m an Employee Who Also Does Gig Work, Can I Deduct My Home Office?

If you’re a W-2 employee, but have a self-employed side gig, you can deduct your home office if you only use it for your self-employed work. The fact the home office is used exclusively for work also applies.

“If you use the same desk while working as an employee and as a freelancer, or as a freelancer and for personal use, the deduction is not allowed,” Logan said.

Do Teachers Get a Tax Deduction for Working from Home?

Teachers come under the same rules as all other employees do. If they teach from home, they can’t take a deduction for it. The 2017 tax law, however, did provide one small tax break, and it’s increased by $50 in the years since. Teachers can deduct up to $300 a school year for unreimbursed expenses. Two qualified teachers filing jointly can claim $600.

To qualify, they must teach a grade between kindergarten and 12th grade or be a counselor, principal or classroom aide working in a school that provides elementary or secondary education and work at least 900 hours during the school year.

Qualified expenses include professional development courses, books, supplies, computer equipment, related software and services, supplementary materials, and other education-related expenses listed by the IRS.

The expenses must not exceed certain education-related reimbursements excluded from income, including interest on savings bonds, from a qualified state tuition program, tax-free withdrawals from Coverdell education savings accounts, and expenses that aren’t reported on box 1 of a W-2.

What Can You Write off on Your Taxes If You Work from Home?

Most W-2 employees who work from home can’t write off anything work-related when filing taxes in 2024.

The IRS does allow specific groups some wiggle room. Armed forces reservists, qualified performing artists, fee-basis state or local government officials and employees with impairment-related work expenses can claim certain unreimbursed expenses.

Self-Employment Deductions

Self-employed workers can claim work-related deductions, all set by the IRS, including:

• 100% depreciation on large purchases (a new computer, home office furniture, etc.)
• Mileage at a rate of 65.5 cents per mile when filing in 2024
• Household expenses pro-rated for the amount related to work, including utilities, cell service, internet, property taxes, rent, mortgage interest (but not mortgage payments).
• Work-related meals are 50% deductible (save the receipt and write down the purpose)
• Business loan interest
• Health and business insurance
• Publications and subscriptions
• Education
• Retirement fund contributions

Logan cautioned self-employed workers to make sure they can account for their deductions. “People may want to take large deductions, but they need to keep records and receipts,” she said. “If the deductions look out of place for the work activity, [the IRS] might flag the taxpayer for an audit.”

Self-Employment Tax

Those who are self-employed must pay a federal 15.3% self-employment tax on their income, 12.9% of which goes to Social Security and 2.4% to Medicare.

W-2 workers who have a side gig, if it’s freelance and not another W-2 job, also must pay self-employment tax on that income.

The good news is that half of the self-employment tax is deductible from net (after-taxes) income.

Has COVID-19 Changed Anything About Filing Taxes in 2024?

There were no special federal tax breaks for those forced to work from home by the COVID-19 pandemic in 2020. That hasn’t changed in the years since.

The only tax provision for individuals spurred by the pandemic was a CARES Act provision that allowed those taking the standardized deduction to also deduct up to $300 in charitable contributions. That expired at the end of 2021, so it can’t be claimed in 2024.

Will It Be Like This Forever?

The Tax Cuts and Jobs Act remains in effect until Dec. 31, 2025, when Congress can renew it, alter portions of it, or scrap it.

As 2023 ended and 2024 began, Congress was divided on whether to let the TCJA expire or whether to extend it. Nothing will likely be decided until after the 2024 election, analysts say.

Because of how vastly the work landscape has changed since the 2017 TCJA went into effect, even if it expires, tax rules governing working at home likely will be different than they were before the tax law. While 63% of CEOs surveyed by the Society for Human Resource Management predict that most workers will be back in the office full-time by 2026, 90% of employees say they want some kind of flexible work landscape. That push and pull likely means changes that would be reflected in new tax law.

If the 2017 TCJA does expire, a new tax law is approved, or if work-at-home deduction changes are made to what exists now, nothing would take effect until the 2026 tax year, meaning when you file your taxes in 2027.

In the more immediate future, the IRS once again adjusted the 2024 tax year standardized deductions for inflation. When you file taxes in 2025, the standard deduction for married couples filing jointly will be $29,200, single taxpayers and married individuals filing separately will get $14,600, and heads of households will get $21,900.