Deducting Impairment-Related Work Expenses for Employees

Impairment-related work expenses (IRWEs) represent a unique class of costs that can be deducted from your taxable income. The Tax Cuts and Jobs Act of 2017 suspended most miscellaneous itemized deductions for employees for tax years 2018 through 2025. However, IRWEs were specifically excluded from this suspension, preserving them as a deduction for employees with disabilities who incur out-of-pocket costs to maintain their employment.

Eligibility for the Deduction

To claim a deduction for impairment-related work expenses, an individual must first meet the Internal Revenue Service’s definition of having a qualifying impairment. This is defined as a physical or mental disability that presents a functional limitation to employment or that substantially limits one or more major life activities. The IRS identifies these activities as functions like walking, seeing, hearing, speaking, breathing, learning, and working. The condition does not need to be permanent, but it must be the direct reason for the expense.

Once eligibility is established, the expenses must meet two conditions to qualify as IRWEs. The first is that the expense must be necessary for the employee to perform their job duties. The second is that the expense must be for goods or services not required or used, other than incidentally, in the employee’s personal life. This distinction separates a work-specific need from a general medical or personal need.

For example, paying for attendant care services, such as a reader or a sign language interpreter for work-related functions, would qualify. The cost of specialized software that makes a computer accessible, or modifications to a vehicle necessary for commuting, are also common examples of deductible IRWEs. These expenses are only necessary because of the impairment and are directly linked to the individual’s ability to be employed.

Conversely, some expenses would not meet the required criteria. The cost of a prescription medication, even if it enables the person to work, is generally considered a medical expense, not an IRWE, because it is not used exclusively at the place of employment. Similarly, the cost of a standard wheelchair used for both personal and work mobility would likely be classified as a medical expense.

If an employer provides reimbursement for an expense, that amount cannot be deducted by the employee. Only out-of-pocket costs paid by the employee during the tax year are eligible for the deduction.

Required Information and Documentation

Proper recordkeeping is needed when preparing to claim a deduction for IRWEs. You must maintain records that can substantiate the costs you are claiming. This documentation serves as proof of the expense and its connection to your work. Records include original receipts, paid invoices, and canceled checks that show the amount paid, the date, and a description of the purchase.

The calculation of these expenses is performed using IRS Form 2106, Employee Business Expenses. While the use of this form was curtailed for most employees by tax reform, it remains the designated form for individuals with IRWEs. The form is used to list all qualifying unreimbursed expenses incurred during the tax year.

When completing Form 2106, you will enter your personal information and occupation at the top. The section for reporting the costs is Part I, “Employee Business Expenses and Reimbursements.” Here, you will list the specific amounts for each category of expense, such as attendant care or other specialized services. You should only include expenses that strictly meet the IRWE definition.

The Deduction Process on Your Tax Return

Impairment-related work expenses are claimed as an itemized deduction. This means you must file a Schedule A, Itemized Deductions, with your Form 1040. If you choose to take the standard deduction, you cannot separately deduct your IRWEs.

The total calculated on Form 2106 is transferred to Schedule A. A feature of this deduction is that it is not subject to the 2% of Adjusted Gross Income (AGI) floor. Before the tax law changes, many miscellaneous deductions could only be claimed to the extent that their total exceeded 2% of a taxpayer’s AGI. The absence of this limitation means every dollar of a qualifying expense is deductible.

To complete the process, you will take the final expense total from Form 2106 and enter it on line 16 of Schedule A, which is designated for “Other Itemized Deductions.” The instructions for Schedule A specify that IRWEs are to be reported on this line. To ensure clarity, you should also write “IRWE” on the dotted line provided next to the entry for the amount.