The home office deduction could’ve been this tax season’s most popular way to reduce taxes — a breakout tax break.
After all, the pandemic forced two-thirds of the full-time U.S. workforce to work at home for at least part of 2020, according to surveys. At one point over the summer, nearly twice as many employees were working from home than traditional workplaces, the Stanford Institute for Economic Policy Research reported.
Dining room tables and basement sofas became workplaces. Downtown office towers and suburban office parks went dark. “WFH” became shorthand for this new reality.
And the federal tax code for years used to help out this kind of employee. They could reduce taxable income by deducting the cost of running home offices and for other unreimbursed employee expenses.
But those deductions were killed off by the 2017 tax overhaul passed under President Donald Trump, which slashed corporate tax rates while rejiggering individual rates — allowing for a higher standard deduction but fewer itemized deductions.
Today, most employees forced by the pandemic to work at home fail to qualify for the home office deduction, which might have shaved hundreds or even thousands of dollars off an individual tax bill. No deduction for the cost of printer paper, new office furniture or the additional heating required for being home during the workday.
In an ironic twist, companies still enjoy a tax benefit for providing office space for employees, despite many workplaces sitting empty as those same employees work at home.
Self-employed people are still able to take the home office deduction. But ordinary workers cannot.
“It’s frustrating. You’re working from home, but you can’t take this home office deduction,” said Rhonda Collins of the National Association of Tax Professionals.
Martin Davidoff, an accountant with Prager Metis accounting firm in New Jersey, said many people are just now realizing they fail to qualify.
“One of my clients — he’s a TV reporter. He’s been working from home the entire year. He has a home studio. And I had to tell him, ‘You can’t deduct the home office,’ ” Davidoff said. “He’s so annoyed.”
The pandemic has created a wave of tax headaches. There is confusion about how to account for money received under various federal pandemic relief bills. People who got unemployment aid are facing unexpected tax bills. And states are fighting over who gets to collect income tax from workers whose ordinary routines have been upended by the pandemic.
The Supreme Court recently took up the case of New Hampshire v. Massachusetts over this issue. New Hampshire doesn’t have a personal income tax, but about 84,000 New Hampshire residents normally pay Massachusetts income tax because they work in the neighboring state. Then the pandemic hit. These workers no longer visited their Bay State offices. But Massachusetts created an emergency rule that said the telecommuting workers would be treated as if they did go to the office and needed to pay its state income tax. New Hampshire objected and sued.
With confusion over tax matters growing, Collins’s tax professionals group recently asked the Internal Revenue Service to delay the traditional April 15 tax filing deadline. There’s no sign that will happen. In 2020, the IRS extended the filing deadline by three months because of the pandemic.
Before Trump’s tax revamping, at least 14.8 million filers who were not self-employed took a deduction for unreimbursed business expenses, said Garrett Watson, senior policy analyst at the Tax Foundation.
It’s difficult to determine the exact value of those deductions because of the different ways filers can claim expenses on tax forms. But they appeared to be worth up to $23 billion, Watson said.
Today, if the home office deduction was still in effect, 74 million people could have potentially qualified for it.
Davidoff said he hoped Congress would consider changing the nation’s tax laws to allow all workers to take the deduction for the 2020 tax year because of the pandemic.
“This is about a broader inequality in the law that is about more than just the pandemic,” Davidoff said. “Any expense incurred in helping to get income should be deductible.”
There is one way for ordinary workers stuck at home to qualify for the home office deduction in the future, Collins said.
Start a business, she said.
If you run a side business — for example, if you moonlight as an accounting teacher and are paid as an independent contractor — you can still claim the deduction. That’s what she does.
“If you’re working from home during covid and thinking, ‘Maybe I should start a business,’ ” Collins said. “You should.”