Working from home has its perks. You can make the 20-step commute from your bedroom to your office in a little under four seconds. And pajamas are the new business casual wear.
But does working remotely have any tax advantages? What are work-from-home tax deductions or write-offs? We want you to get every deduction you deserve—so you’ll have more cash in your pocket to get out of debt, save for an emergency fund, and win with money. So let’s dig into the deets on work-from-home deductions.
Can I claim the home office tax deduction if I've been working remotely?
If your employer instituted work-from-home policies during the pandemic, you probably spent some time and money setting up a home office (the kitchen table just wasn’t going to cut it for a desk). And maybe you’ve continued working remotely some or all of the time.
Unfortunately, if you’re a salaried or hourly employee (the kind who receives a W-2 during tax season), you can’t take tax deductions for your home office. Bummer. (But grab some string cheese from the fridge next to your desk, and you’ll feel better before you know it.)
Self-Employed Independent Contractors
So who gets to take work-from-home tax deductions? Well, the IRS reserves them for self-employed independent contractors. In other words, if you work full time as a freelancer or have a side hustle that requires an office, you qualify to deduct a portion of your home’s expenses.
Got small business tax questions? RamseyTrusted tax pros are an extension of your business.
The IRS used to allow W-2 employees to deduct expenses related to working from home, but Congress changed that with its 2017 tax reform bill. A few very specific types of W-2 employees can still take the home office tax deduction, but we’ll talk about that in a minute.
Tax Deductions for Contractors
If you’re self-employed, you’ll probably end up receiving one or more 1099-NEC tax forms from the companies you worked for. A 1099 lists income you earned as an independent contractor so you can report it on your taxes. Don’t just toss those in a desk drawer. You’ll need them come tax time!
When you’re self-employed you often end up wearing lots of hats—accountant, HR rep, janitor. And since you don’t have an employer withholding taxes from your paycheck, it’s up to you to manage them yourself. That includes the self-employment tax, which is the full 15.3% of Social Security and Medicare taxes (an employer normally pays half of these taxes).
One of the bigger tax deductions you can take if you work from home as an independent contractor is the home office deduction. To take this deduction, you’ll need to figure out the percentage of your home used for business. Say your home office occupies 10% of your house. That mean you can deduct 10% of your utility bills (electricity, water and gas), mortgage payment or rent, property taxes, mortgage interest, homeowners insurance, repairs, and maintenance.
Home-Based Worker Exceptions
There are exceptions to every rule, right? So the small (and very specific) group of W-2 employees who can claim work-from-home tax deductions are Armed Forces reservists, certain performing artists, state or local government officials who are paid on a fee basis, people with physical or mental disabilities, and teachers.1
If you fall into any of those groups, you’ll still need to jump through a couple of hoops before you actually get a deduction. (Yep, Uncle Sam loves to have you jump through hoops.)
First, the IRS only allows you to deduct expenses above 2% of your adjusted gross income.2 So if your income is $50,000, your threshold to begin claiming expenses is $1,000.
Reaching the threshold for expenses doesn’t sound super difficult, but the second hoop is the real deal breaker. To claim expenses, you’ll need to itemize deductions. Since most W-2 employees get a lower tax bill by taking the standard deduction instead of itemizing, you’re probably just going to be out of luck if you want to claim expenses.
How to Claim Work-From-Home Tax Deductions
If you’re still reading, that must mean you’re self-employed and can claim work-from-home tax deductions. If that’s the case, you’re going to have to fill out a Schedule C. This form lists profit or loss from business, and it’s where you can deduct all of your business expenses. Hopefully your deductions will add up to a nice little chunk of change!
Get Some Help With Your Taxes
If your taxes are simple enough to do on your own and you want an easy-to-use tax software that can give you some peace of mind, check out Ramsey SmartTax! No hidden fees, no advertisements, no games. That’s how it should be!
But hey, if you feel like you need someone to guide you through all those forms and schedules, ask an Endorsed Local Provider (ELP) for help with your taxes. They’re RamseyTrusted and can help you file your taxes with confidence. Find a tax pro today!