Employee Business Expenses Remain Mostly Non-Deductible: What Counts and Common Audit Pitfalls

Before 2018, many employees claimed deductions for unreimbursed business expenses on Schedule A under miscellaneous itemized deductions, subject to the 2% of adjusted gross income (AGI) floor. The Tax Cuts and Jobs Act (TCJA) suspended this category through 2025, meaning most employees cannot deduct business-related costs like travel, uniforms, or supplies they pay out of pocket.

However, certain groups (like Armed Forces reservists, qualified performing artists, and fee-basis state or local government officials) may still claim deductions under specific IRS rules. Understanding these exceptions is critical to avoid errors and IRS audits.

🚫 Commonly Non-Deductible Employee Expenses

• Home office expenses for W-2 employees (deduction suspended).
• Unreimbursed mileage for work-related driving (except for specific groups).
• Professional licenses, union dues, and continuing education (unless self-employed).
• Business travel, lodging, and meals not reimbursed by your employer.
• Tools, uniforms, and equipment paid personally but not reimbursed.

These were once deductible, but for most employees, they remain non-deductible through at least tax year 2025.

✅ Who Still Qualifies for Deductions?

While most taxpayers cannot deduct these expenses, some exceptions apply. If you fall into these categories, you may still deduct certain business expenses:

• Armed Forces Reservists: Travel expenses for reserve duties may be deductible.
• Qualified Performing Artists: Musicians, actors, and related professionals with W-2 income may qualify.
• Fee-Basis State or Local Government Officials: Certain official duties allow expense deductions.
• Employees with Impairment-Related Work Expenses: Necessary costs to do your job are still deductible.

These deductions are taken on Schedule 1 (Form 1040) as above-the-line adjustments, meaning you don’t need to itemize.

⚠️ Common Audit Pitfalls

Because unreimbursed employee expenses were once widely deducted, the IRS pays close attention to claims. Common mistakes include:

• Claiming Non-Deductible Items: Filing deductions for meals, commuting, or uniforms when no exception applies.
• Mixing Employee vs. Self-Employed Rules: W-2 employees cannot use the same deductions as Schedule C filers.
• Poor Documentation: Failing to keep receipts, mileage logs, or proof of expenses.
• Overlapping with Employer Benefits: Trying to deduct costs already reimbursed by the employer.
• Improper Home Office Deduction: Available only to self-employed taxpayers, not employees.

Incorrectly claiming non-deductible expenses can lead to IRS notices, audits, and penalties.

💡 Tax Planning Tips for Employees

• Ask About Reimbursements: Request employer reimbursement programs such as accountable plans.
• Track Eligibility: If you qualify under exceptions, carefully document hours, income, and receipts.
• Consider Self-Employment: Side gigs may allow you to deduct business expenses on Schedule C.
• Check State Rules: Some states still allow deductions even if federal law does not.

🔑 Key Takeaways

• Most unreimbursed employee expenses remain non-deductible until at least 2025.
• Special exceptions exist for reservists, performing artists, government officials, and impairment-related expenses.
• Audit risks are high—claiming improper deductions may trigger IRS review.
• Plan ahead: request reimbursements or explore side self-employment for legitimate deductions.