Tax Implications of Working From Home and Unemployment

COVID-19 has changed our lives in many ways, and some of the changes have tax implications. Here is basic information on two common situations.

1. Working from home.

Because of the COVID-19, many employees can not go back to work now. If you’re an employee who “telecommutes”, you should know about the rules that govern whether you can deduct your home office expenses.

Telecommuting includes communicating with your employer mainly by telephone, videoconferencing, email, etc. from your home office.

Unfortunately, some employee home office expenses aren’t deductible, even though your employer requires you to work from home.

Employee business expense deductions are miscellaneous itemized deductions and are disallowed from 2018 through 2025 under the Tax Cuts and Jobs Act.

If you’re self-employed and work out of an office in your home, you may be eligible to claim home office deductions.

2. Collecting unemployment

Because of COVID-19, over a million Americans have lost their jobs and are collecting unemployment benefits. However, some of these people don’t know that these benefits are taxable. For the tax year benefits are received, they can be reported on their federal income tax returns

Taxable benefits include the special unemployment compensation authorized under the Coronavirus Aid, Relief and Economic Security (CARES) Act.

Unemployment recipients can have taxes withheld from their benefits. As a result, they can avoid a surprise tax bill when filing a 2020 income tax return next year. Under federal law, recipients can have 10% withheld from their benefits to cover part or all their tax liability.

To do this, complete Form W4-V (Voluntary Withholding Request) and give it to the agency paying benefits. (Don’t send it to the IRS.)

How we can help

We can assist you with advice about whether you qualify for home office deductions, and which expenses you can deduct. Contact us for more information.