Are Unreimbursed Employee Expenses Deductible?

Employees often incur costs related to their jobs that are not paid back by their employer. Whether these unreimbursed expenses can be used to reduce taxable income depends on federal tax law, the employee’s profession, and the nature of the costs. The rules for this deduction have shifted significantly, making it important to understand the current federal and state guidelines.

The Federal Suspension of the Employee Expense Deduction

For most employees, the ability to deduct unreimbursed work-related expenses on a federal tax return is unavailable. This change was implemented by the Tax Cuts and Jobs Act of 2017 (TCJA), which suspended the category of miscellaneous itemized deductions subject to a 2% adjusted gross income (AGI) threshold. Before this law, employees could deduct qualifying work expenses that exceeded 2% of their AGI.

This suspension applies to tax years 2018 through 2025. During this period, W-2 employees cannot claim deductions for common costs like work-related travel, supplies, or uniforms on their federal returns, even if they itemize. The rationale for this suspension was part of a tax reform that nearly doubled the standard deduction. This increase was intended to simplify tax filing, with the trade-off being the elimination of several itemized deductions. The rules are scheduled to revert to the pre-TCJA framework in 2026 unless new legislation is passed.

Professions Still Eligible for the Federal Deduction

While the general suspension affects most of the workforce, Congress created exceptions for a few professions. These individuals can continue to deduct unreimbursed employee expenses as an adjustment to income.

One such group is Armed Forces reservists. Members of the reserve components of the military can deduct expenses for traveling more than 100 miles from home in connection with their service. This deduction is limited to the federal per diem rate for lodging and meals and the standard mileage rate for vehicle expenses.

Another eligible category is qualified performing artists. To meet this definition, an individual must satisfy a strict, four-part test:

• Provided services in the performing arts for at least two employers during the tax year.
• Received at least $200 in wages from a minimum of two of those employers.
• Have business expenses related to their art that exceed 10% of their gross income from it.
• Have an adjusted gross income of $16,000 or less before deducting these expenses.

This allows certain actors and musicians with modest incomes to deduct their job-related costs.

Fee-basis state or local government officials also retain this deduction. These are individuals compensated, in whole or in part, on a fee basis for performing a public function. This often includes officials in smaller jurisdictions who are paid a set fee per service rather than receiving a regular salary.

Finally, employees with impairment-related work expenses (IRWEs) can deduct costs necessary for them to be able to work. An IRWE is a cost for an item or service, such as attendant care at the workplace, that enables an employee with a physical or mental disability to perform their job.

Types of Qualifying Work-Related Expenses

For the taxpayers who remain eligible, a deductible expense must be both “ordinary and necessary.” An ordinary expense is one that is common in your profession, while a necessary expense is one that is helpful and appropriate for your work. An expense does not have to be indispensable to be considered necessary.

Vehicle expenses are a common category for those who use a personal car for work. Taxpayers can choose between two methods: the standard mileage rate or the actual expense method. The standard rate is a set amount per mile driven for business, while the actual expense method involves tracking all costs like gas, oil, repairs, insurance, and depreciation.

Travel expenses incurred while away from your tax home for business purposes are also deductible. A tax home is the entire city or general area where your main place of business is located. Deductible travel costs include transportation fares, lodging, and meals, though the deduction for business meals is limited to 50% of the actual cost.

Eligible employees can also deduct the cost of supplies and tools required for their job but not provided by the employer. Other qualifying costs can include dues paid to professional societies, fees for licenses required for the job, and expenses for work-related education that maintains or improves skills for the current position.

How to Claim the Federal Deduction

Claiming the deduction for unreimbursed employee expenses requires careful record-keeping and the use of Form 2106, Employee Business Expenses. Before filling it out, a taxpayer must have all relevant records, such as receipts, mileage logs, and travel itineraries, to substantiate the costs being claimed.

The form is divided into two main parts. Part I is used to detail all employee business expenses, such as travel and meals, where the 50% limit on meals is applied. Part II is dedicated to calculating vehicle expenses, whether using the standard mileage rate or the actual expense method, and a separate Part II must be completed for each vehicle used.

Once Form 2106 is completed, the total is transferred to Form 1040. For Armed Forces reservists, qualified performing artists, and fee-basis government officials, the total is reported on Schedule 1 as an “above-the-line” deduction. This means the deduction reduces their AGI and is advantageous as it does not require them to itemize.

The process is different for employees with impairment-related work expenses. While these costs are also calculated on Form 2106, the deductible amount is carried to Schedule A, Itemized Deductions. Although it is an itemized deduction, it is not subject to the 2% of AGI limitation.

State Tax Considerations for Employee Expenses

State income tax laws do not always align with federal rules, and the TCJA’s suspension of the deduction did not automatically apply to all states. Each state must decide whether to conform to changes in the Internal Revenue Code.

Some states have “rolling conformity,” meaning they automatically adopt most federal tax law changes as they occur. In these states, the suspension of the employee expense deduction likely applies at the state level as well. Other states have “static conformity,” where their tax code is tied to the Internal Revenue Code as of a specific date. These states may not have adopted the TCJA changes, meaning the deduction might still be available on the state tax return.

A number of states have explicitly chosen not to conform to this provision. In these locations, employees may still be able to deduct work-related costs on their state return, often following the pre-TCJA rules. It is advisable for employees who incur unreimbursed expenses to investigate the specific rules of their state of residence.