Working From Home Tax Deductions For Employees and Independent Contractors are Different! Here’s Why

Last Updated on June 24, 2021

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Working from home can enable you to get some serious tax deductions. But there’s a big difference between being an employee and an independent contractor.

Short story? If you’re an employee working from home it’s a lot harder to claim deductions. But don’t panic. There are options.

Whether you’re freelance or on staff there are ways to save money when filing taxes. Here are some tips and tricks.


Tax Deduction! Do I Qualify?


For some, working from home has been a necessity for years. Gig workers, self-employed business-starters, and freelancers have used the digital age to their advantage. But for many salaried employees, the past year has been a curveball. Though you’ve likely eliminated long commutes and spent less money on fancy dress pants, the savings haven’t been as big as you expected. Instead, higher electrical bills, new office furniture, and faster Wi-Fi services have emptied wallets. Now that tax refund season is here, will you get some of it back?


Working from home has transformed our homes into offices. What can we do to save money?
Working from home has transformed our homes into offices. What can we do to save money? Photo Credit: Shutterstock



The Tax Cuts and Jobs Acts allowed employees to claim itemized deductions for unreimbursed employee business expenses. Comfy office chairs and new laptops were included! If employees made purchases for the convenience of the employer, tax deductions could be lumped with other miscellaneous expenses like union dues, or fees for tax and investment advice.


If total expenses exceeded 2 percent of a taxpayer’s adjusted gross income, they could write it off. Big bucks inbound!


That, however, has changed. The Tax Cuts and Jobs Act has since suspended miscellaneous deductions involved in the 2 percent rule. For taxpayers filing taxes from 2018-2025, writing off office supplies is a thing of the past. Well, a thing of 2017. Federal income tax law no longer lets employees write off their watercooler or breakroom purchases if it’s part of their home. No ifs, ands, or buts.


Is There Hope?


Definitely! Congress could grant additional Covid-19 tax relief for employees that would allow write-offs and deductions for home office supplies. Until then, though, there may be some other methods to earn your money back after renovating that spare bedroom into your “work from home” office.


Can Work From Home Employees Take Tax Deductions? If you're a salaried employee, you may not like the answer.
Can Working From Home Employees Take Tax Deductions? If you’re a salaried employee, you may not like the answer. Photo Credit: Shutterstock


Ask And You Shall Receive! Maybe…


There are some ways employees can be reimbursed for the new “work from home” expenses that have started to pile up. From printers to laptops to desk chairs, supplies can take a bite out of your paycheck. However, sometimes businesses will send you a check to reimburse all your needs.


This may not cover luxuries like extra food for your make-shift breakroom, but you could get a nice reimbursement for an office desk, laptop, or enhanced Wi-Fi service provider. All you have to do is ask.


Sometimes, businesses set aside funds to take care of work from home employees. Businesses are beginning to benefit tremendously from employees taking time away from the office and doing work from home. Some businesses have started renting out office spaces or downsizing to smaller buildings due to reduced need. If that’s the case, there could be more money in their accounts to help employees pay for their at-home offices.


It may not be a lot, but it’s the only answer for salaried employees expecting some level of refund for all those unexpected expenses. Hopefully, you kept your receipts!


Tax Reductions For Employers


Many businesses can write off reimbursements, so be sure to ask how your office supplies can help the business increase its tax deductions. Some employers really do want to help their employees in any way they can. So send them your receipts and see what they’ll reimburse.


Independent Contractors And Self-Employed Taxpayers


For freelancers, independent contractors, and self-employed taxpayers, the story has a happier ending. Despite the suspension of the Tax Cuts and Jobs Act from 2018-2025, those who qualify can still claim deductions for office supplies under one very special condition …


I Qualify! Now What?


The work from home tax deduction only applies if the self-employed taxpayer, independent contractor, or gig worker uses part of his home “exclusively and regularly as a principal place of business for a trade or business,” according to the IRS. This means that the taxpayer regularly uses part of their home for work purposes. If you’re using your spare bedroom or garage as a full-blown office, this means you.


Here’s the catch: The deduction is only allowed for a “room or section of residence” used “exclusively for business,” according to Peter DeGrogori, the managing partner of Vertical Advisors. So if your office is in the corner of your bedroom then it won’t cut it. Even if the spare bedroom is used as the office 99 percent of the time, but on Holidays is transformed into a guest suite, you’re out of luck, too. The deduction only works for spaces used exclusively for work purposes. Nothing more.


DeGregori notes that the chances of an audit are slim. “As long as the numbers aren’t outrageous” it’s most likely OK. So even if Thanksgiving dinner is in your make-shift office, you probably won’t have the IRS knocking on your door!


Make sure to take pictures of your “exclusive” workplace for your records just in case the IRS decides to put on their Sherlock caps and do some digging. 


Ready, Set, Claim!


Taxpayers can claim the deduction in two ways. 


The simplified method allows a deduction of up to $1,500. Taxpayers will have to use the Schedule C form which asks for the total square footage of the home and the square footage of the dedicated office space. The IRS then applies a formula of $5 per square foot. This method, however, doesn’t account for electricity bills, property taxes, and other necessary bills that come when working from home and dedicating space as such.


The expansive method uses IRS Form 8829 and taxpayers will have to show their math. So get your calculators ready. Or send all your bills to your accountant and have them crunch the numbers. Though computers and chairs won’t get you a deduction, the space used as the dedicated office space can bring home big refunds. Tallying up rent, utilities, renter’s insurance, and home improvements for the percentage of the square footage of the dedicated office space can work towards the much-needed deduction.


For example, if a person uses a third of his apartment exclusively for work purposes – such as seeing clients or doing business – 33.3 percent can equal quite a hefty deduction. As long as you can prove it.


Though it’s tempting to use the simplified method, the expansive method almost always yields better results. So if you can put in the time do it! You’ll be so glad you did.