This section explains where and how to report the expenses discussed in this chapter. It discusses reimbursements and how to treat them under accountable and nonaccountable plans. It also explains rules for independent contractors and clients, fee-basis officials, certain performing artists, Armed Forces reservists, and certain disabled employees. This section ends with an illustration of how to report travel, entertainment, gift, and car expenses on Form 2106-EZ.taxmap/pub17/p17-149.htm#en_us_publink100034488
You must report your income and expenses on Schedule C or C-EZ (Form 1040) if you are a sole proprietor, or on Schedule F (Form 1040) if you are a farmer. You do not use Form 2106 or 2106-EZ. See your form instructions for information on how to complete your tax return. You can also find information in Publication 535 if you are a sole proprietor, or in Publication 225, Farmer's Tax Guide, if you are a farmer.taxmap/pub17/p17-149.htm#en_us_publink100034489
If you are both self-employed and an employee, you must keep separate records for each business activity. Report your business expenses for self-employment on Schedule C, C-EZ, or F (Form 1040), as discussed earlier. Report your business expenses for your work as an employee on Form 2106 or 2106-EZ, as discussed next.taxmap/pub17/p17-149.htm#en_us_publink100034490
If you are an employee, you generally must complete Form 2106 to deduct your travel, transportation, and entertainment expenses. However, you can use the shorter Form 2106-EZ instead of Form 2106 if you meet all of the following conditions.
- You are an employee deducting expenses attributable to your job.
- You were not reimbursed by your employer for your expenses (amounts included in box 1 of your Form W-2 are not considered reimbursements).
- If you claim car expenses, you use the standard mileage rate.
If you did not receive any reimbursements (or the reimbursements were all included in box 1 of your Form W-2), the only business expense you are claiming is for gifts, and the rules for certain individuals (such as performing artists) discussed later under Special Rules
do not apply to you, do not complete Form 2106 or 2106-EZ. Instead, claim the amount of your deductible gifts directly on line 21 of Schedule A (Form 1040).
If you received a Form W-2 and the "Statutory employee" box in box 13 was checked, report your income and expenses related to that income on Schedule C or C-EZ (Form 1040). Do not complete Form 2106 or 2106-EZ.
Statutory employees include full-time life insurance salespersons, certain agent or commission drivers, traveling salespersons, and certain homeworkers.
If you are entitled to a reimbursement from your employer but you do not claim it, you cannot claim a deduction for the expenses to which that unclaimed reimbursement applies.
If your employer reimburses you for nondeductible personal expenses, such as for vacation trips, your employer must report the reimbursement as wage income in box 1 of your Form W-2. You cannot deduct personal expenses. taxmap/pub17/p17-149.htm#en_us_publink100034495
This section explains what to do when you receive an advance or are reimbursed for any of the employee business expenses discussed in this chapter.
Table 26-2. How To Prove Certain Business Expenses
|IF you have expenses for...||THEN you must keep records that show details of the following elements...|
|Amount||Time||Place or Description||Business Purpose and |
|Travel||Cost of each separate expense for travel, lodging, and meals. Incidental expenses may be totaled in reasonable categories such as taxis, fees and tips, etc. ||Dates you left and returned for each trip and number of days spent on business.||Destination or area of your travel (name of city, town, or other designation).||Purpose: Business purpose for the expense or the business benefit gained or expected to be gained.|
|Entertainment||Cost of each separate expense. Incidental expenses such as taxis, telephones, etc., may be totaled on a daily basis.||Date of entertainment. (Also see Business Purpose.) ||Name and address or location of place of entertainment. Type of entertainment if not otherwise apparent. (Also see Business Purpose.) ||Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. For entertainment, the nature of the business discussion or activity. If the entertainment was directly before or after a business discussion: the date, place, nature, and duration of the business discussion, and the identities of the persons who took part in both the business discussion and the entertainment activity.|
Relationship: Occupations or other information (such as names, titles, or other designations) about the recipients that shows their business relationship to you. For entertainment, you must also prove that you or your employee was present if the entertainment was a business meal.
|Cost of the gift.|
|Date of the gift.|
|Description of the gift.|
|Transportation||Cost of each separate expense. For car expenses, the cost of the car and any improvements, the date you started using it for business, the mileage for each business use, and the total miles for the year. ||Date of the expense. For car expenses, the date of the use of the car.||Your business destination.||Purpose: Business purpose for the expense.|
If you received an advance, allowance, or reimbursement for your expenses, how you report this amount and your expenses depends on whether the reimbursement was paid to you under an accountable plan or a nonaccountable plan.
This section explains the two types of plans, how per diem and car allowances simplify proving the amount of your expenses, and the tax treatment of your reimbursements and expenses.taxmap/pub17/p17-149.htm#en_us_publink100034496
You are not reimbursed or given an allowance for your expenses if you are paid a salary or commission with the understanding that you will pay your own expenses. In this situation, you have no reimbursement or allowance arrangement, and you do not have to read this section on reimbursements. Instead, see Completing Forms 2106 and 2106-EZ,
later, for information on completing your tax return.
A reimbursement or other expense allowance arrangement is a system or plan that an employer uses to pay, substantiate, and recover the expenses, advances, reimbursements, and amounts charged to the employer for employee business expenses. Arrangements include per diem and car allowances.
A per diem allowance is a fixed amount of daily reimbursement your employer gives you for your lodging, meal, and incidental expenses when you are away from home on business. (The term "incidental expenses" is defined earlier under Meals and Incidental Expenses.
) A car allowance is an amount your employer gives you for the business use of your car.
Your employer should tell you what method of reimbursement is used and what records you must provide. taxmap/pub17/p17-149.htm#en_us_publink100034498
To be an accountable plan, your employer's reimbursement or allowance arrangement must include all of the following rules.
- Your expenses must have a business connection — that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer.
- You must adequately account to your employer for these expenses within a reasonable period of time.
- You must return any excess reimbursement or allowance within a reasonable period of time.
An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer.
The definition of a reasonable period of time depends on the facts and circumstances of your situation. However, regardless of the facts and circumstances of your situation, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time.
- You receive an advance within 30 days of the time you have an expense.
- You adequately account for your expenses within 60 days after they were paid or incurred.
- You return any excess reimbursement within 120 days after the expense was paid or incurred.
- You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement.
If you meet the three rules for accountable plans, your employer should not include any reimbursements in your income in box 1 of your Form W-2. If your expenses equal your reimbursement, you do not complete Form 2106. You have no deduction since your expenses and reimbursement are equal.
If your employer included reimbursements in box 1 of your Form W-2 and you meet all the rules for accountable plans, ask your employer for a corrected Form W-2.
Even though you are reimbursed under an accountable plan, some of your expenses may not meet all the rules. Those expenses that fail to meet all three rules for accountable plans are treated as having been reimbursed under a nonaccountable plan
You may be reimbursed under your employer's accountable plan for expenses related to that employer's business, some of which are deductible as employee business expenses and some of which are not deductible. The reimbursements you receive for the nondeductible expenses do not meet rule (1) for accountable plans, and they are treated as paid under a nonaccountable plan. taxmap/pub17/p17-149.htm#en_us_publink100034503
Your employer's plan reimburses you for travel expenses while away from home on business and also for meals when you work late at the office, even though you are not away from home. The part of the arrangement that reimburses you for the nondeductible meals when you work late at the office is treated as paid under a nonaccountable plan.
The employer makes the decision whether to reimburse employees under an accountable plan or a nonaccountable plan. If you are an employee who receives payments under a nonaccountable plan, you cannot convert these amounts to payments under an accountable plan by voluntarily accounting to your employer for the expenses and voluntarily returning excess reimbursements to the employer.
One of the rules for an accountable plan is that you must adequately account to your employer for your expenses. You adequately account by giving your employer a statement of expense, an account book, a diary, or a similar record in which you entered each expense at or near the time you had it, along with documentary evidence (such as receipts) of your travel, mileage, and other employee business expenses. (See Table 26-2, earlier, for details you need to enter in your record and documents you need to prove certain expenses.) A per diem or car allowance satisfies the adequate accounting requirement under certain conditions. See Per Diem and Car Allowances
You must account for all amounts you received from your employer during the year as advances, reimbursements, or allowances. This includes amounts you charged to your employer by credit card or other method. You must give your employer the same type of records and supporting information that you would have to give to the IRS if the IRS questioned a deduction on your return. You must pay back the amount of any reimbursement or other expense allowance for which you do not adequately account or that is more than the amount for which you accounted. taxmap/pub17/p17-149.htm#en_us_publink100034506
If your employer reimburses you for your expenses using a per diem or car allowance, you can generally use the allowance as proof of the amount of your expenses. A per diem or car allowance satisfies the adequate accounting requirements for the amount of your expenses only if all of the following conditions apply.
- Your employer reasonably limits payments of your expenses to those that are ordinary and necessary in the conduct of the trade or business.
- The allowance is similar in form to and not more than the federal rate (discussed later).
- You prove the time (dates), place, and business purpose of your expenses to your employer (as explained in Table 26-2) within a reasonable period of time.
- You are not related to your employer (as defined next). If you are related to your employer, you must be able to prove your expenses to the IRS even if you have already adequately accounted to your employer and returned any excess reimbursement.
If the IRS finds that an employer's travel allowance practices are not based on reasonably accurate estimates of travel costs (including recognition of cost differences in different areas for per diem amounts), you will not be considered to have accounted to your employer. In this case, you must be able to prove your expenses to the IRS.
You are related to your employer if:
- Your employer is your brother or sister, half brother or half sister, spouse, ancestor, or lineal descendant,
- Your employer is a corporation in which you own, directly or indirectly, more than 10% in value of the outstanding stock, or
- Certain relationships (such as grantor, fiduciary, or beneficiary) exist between you, a trust, and your employer.
You may be considered to indirectly own stock, for purposes of (2), if you have an interest in a corporation, partnership, estate, or trust that owns the stock or if a member of your family or your partner owns the stock.
The federal rate can be figured using any one of the following methods.
- For per diem amounts:
- The regular federal per diem rate.
- The standard meal allowance.
- The high-low rate.
- For car expenses:
- The standard mileage rate.
- A fixed and variable rate (FAVR).
For per diem amounts, use the rate in effect for the area where you stop for sleep or rest.
The regular federal per diem rate is the highest amount that the federal government will pay to its employees for lodging, meal, and incidental expenses (or meal and incidental expenses only) while they are traveling away from home in a particular area. The rates are different for different locations. Your employer should have these rates available. (Employers can get Publication 1542 on the Internet, which gives the rates in the continental United States for the current year.) taxmap/pub17/p17-149.htm#en_us_publink100034510
The standard meal allowance (discussed earlier) is the federal rate for meals and incidental expenses (M&IE). The rate for most small localities in the United States is $39 a day from January 1 through December 31, 2008. Most major cities and many other localities qualify for higher rates. The rates for all localities within the continental United States are listed in Publication 1542. You can also find this information on the Internet at www.gsa.gov
You receive an allowance only for meals and incidental expenses when your employer does one of the following.
- Provides you with lodging (furnishes it in kind).
- Reimburses you, based on your receipts, for the actual cost of your lodging.
- Pays the hotel, motel, etc., directly for your lodging.
- Does not have a reasonable belief that you had (or will have) lodging expenses, such as when you stay with friends or relatives or sleep in the cab of your truck.
- Figures the allowance on a basis similar to that used in computing your compensation, such as number of hours worked or miles traveled.
This is a simplified method of computing the federal per diem rate for travel within the continental United States. It eliminates the need to keep a current list of the per diem rate for each city.
Under the high-low method, the per diem amount for travel during January through September of 2008 is $237 (including $58 for M&IE) for certain high-cost locations. All other areas have a per diem amount of $152 (including $45 for M&IE). (Employers can get Publication 1542 which gives the areas eligible for the $237 per diem amount under the high-low method for all or part of this period.)
Effective October 1, 2008, the per diem rate for certain high-cost locations increased to $256 (including $58 for M&IE). The rate for all other locations increased to $158 (including $45 for M&IE). However, an employer can continue to use the rates described in the preceding paragraph for the remainder of 2008 if those rates and locations are used consistently during October, November, and December for all employees. Employers who did not use the high-low method during the first 9 months of 2008 cannot begin to use it before 2009. See Revenue Procedure 2008-59
for more information. Also see Publication 1542 on the Internet at www.irs.gov
The standard meal allowance is for a full 24-hour day of travel. If you travel for part of a day, such as on the days you depart and return, you must prorate the full-day M&IE rate. This rule also applies if your employer uses the regular federal per diem rate or the high-low rate.
You can use either of the following methods to figure the federal M&IE for that day.
- Method 1:
- For the day you depart, add 3/4 of the standard meal allowance amount for that day.
- For the day you return, add 3/4 of the standard meal allowance amount for the preceding day.
- Method 2: Prorate the standard meal allowance using any method that you consistently apply and that is in accordance with reasonable business practice.
This is a set rate per mile that you can use to compute your deductible car expenses. For 2008, the standard mileage rate for the cost of operating your car is:
- 501/2 cents per mile for the period January 1 through June 30, 2008, and
- 581/2 cents per mile for the period July 1 through December 31, 2008.
This is an allowance your employer may use to reimburse your car expenses. Under this method, your employer pays an allowance that includes a combination of payments covering fixed and variable costs, such as a cents-per-mile rate to cover your variable operating costs (such as gas, oil, etc.) plus a flat amount to cover your fixed costs (such as depreciation (or lease payments), insurance, etc.). If your employer chooses to use this method, your employer will request the necessary records from you. taxmap/pub17/p17-149.htm#en_us_publink100034516
If your reimbursement is in the form of an allowance received under an accountable plan, the following facts affect your reporting.
- The federal rate.
- Whether the allowance or your actual expenses were more than the federal rate.
The following discussions explain where to report your expenses depending upon how the amount of your allowance compares to the federal rate.
If your allowance is less than or equal to the federal rate, the allowance will not be included in box 1 of your Form W-2. You do not need to report the related expenses or the allowance on your return if your expenses are equal to or less than the allowance.
However, if your actual expenses are more than your allowance, you can complete Form 2106 and deduct the excess amount on Schedule A (Form 1040). If you are using actual expenses, you must be able to prove to the IRS the total amount of your expenses and reimbursements for the entire year. If you are using the standard meal allowance or the standard mileage rate, you do not have to prove that amount. taxmap/pub17/p17-149.htm#en_us_publink100034518
Nicole drives 10,000 miles in 2008 for business (4,500 miles from January 1 through June 30, 2008, and 5,500 miles from July 1 through December 31, 2008). Under her employer's accountable plan, she accounts for the time (dates), place, and business purpose of each trip. Her employer pays her a mileage allowance of 40 cents a mile.
Since Nicole's $5,491 expense computed under the standard mileage rate (4,500 miles × 501/2 cents + 5,500 miles × 581/2 cents) is more than her $4,000 reimbursement (10,000 miles × 40 cents), she itemizes her deductions to claim the excess expense. Nicole completes Form 2106 (showing all of her expenses and reimbursements) and enters $1,491 ($5,491 − $4,000) as an itemized deduction. taxmap/pub17/p17-149.htm#en_us_publink100034519
If your allowance is more than the federal rate, your employer must include the allowance amount up to the federal rate in box 12 of your Form W-2. This amount is not taxable. However, the excess allowance will be included in box 1 of your Form W-2. You must report this part of your allowance as if it were wage income.
If your actual expenses are less than or equal to the federal rate, you do not complete Form 2106 or claim any of your expenses on your return.
However, if your actual expenses are more than the federal rate, you can complete Form 2106 and deduct those excess expenses. You must report on Form 2106 your reimbursements up to the federal rate (as shown in box 12 of your Form W-2) and all your expenses. You should be able to prove these amounts to the IRS. taxmap/pub17/p17-149.htm#en_us_publink100034520
Joe lives and works in Austin. In May his employer sent him to San Diego for 4 days and paid the hotel directly for Joe's hotel bill. The employer reimbursed Joe $75 a day for his meals and incidental expenses. The federal rate for San Diego is $64 a day.
Joe can prove that his actual meal expenses totaled $380. His employer's accountable plan will not pay more than $75 a day for travel to San Diego, so Joe does not give his employer the records that prove that he actually spent $380. However, he does account for the time, place, and business purpose of the trip. This is Joe's only business trip this year.
Joe was reimbursed $300 ($75 × 4 days), which is $44 more than the federal rate of $256 ($64 × 4 days). His employer includes the $44 as income on Joe's Form W-2 in box 1. His employer also enters $256 in box 12 of Joe's Form W-2.
Joe completes Form 2106 to figure his deductible expenses. He enters the total of his actual expenses for the year ($380) on Form 2106. He also enters the reimbursements that were not included in his income ($256). His total deductible expense, before the 50% limit, is $124. After he figures the 50% limit on his unreimbursed meals and entertainment, he will include the balance, $62, as an itemized deduction on Schedule A (Form 1040).taxmap/pub17/p17-149.htm#en_us_publink100034521
Under an accountable plan, you are required to return any excess reimbursement or other expense allowances for your business expenses to the person paying the reimbursement or allowance. Excess reimbursement means any amount for which you did not adequately account within a reasonable period of time. For example, if you received a travel advance and you did not spend all the money on business-related expenses, or you do not have proof of all your expenses, you have an excess reimbursement.
"Adequate accounting" and "reasonable period of time" were discussed earlier in this chapter.taxmap/pub17/p17-149.htm#en_us_publink100034522
You receive a travel advance if your employer provides you with an expense allowance before you actually have the expense, and the allowance is reasonably expected to be no more than your expense. Under an accountable plan, you are required to adequately account to your employer for this advance and to return any excess within a reasonable period of time.
If you do not adequately account for or do not return any excess advance within a reasonable period of time, the amount you do not account for or return will be treated as having been paid under a nonaccountable plan (discussed later). taxmap/pub17/p17-149.htm#en_us_publink100034523
If you do not prove that you actually traveled on each day for which you received a per diem or car allowance (proving the elements described in Table 26-2), you must return this unproved amount of the travel advance within a reasonable period of time. If you do not do this, the unproved amount will be considered paid under a nonaccountable plan (discussed later). taxmap/pub17/p17-149.htm#en_us_publink100034524
If your employer's accountable plan pays you an allowance that is higher than the federal rate, you do not have to return the difference between the two rates for the period you can prove business-related travel expenses. However, the difference will be reported as wages on your Form W-2. This excess amount is considered paid under a nonaccountable plan (discussed later). taxmap/pub17/p17-149.htm#en_us_publink100034525
Your employer sends you on a 5-day business trip to Phoenix in March 2008 and gives you a $400 ($80 × 5 days) advance to cover your meals and incidental expenses. The federal per diem for meals and incidental expenses for Phoenix is $59. Your trip lasts only 3 days. Under your employer's accountable plan, you must return the $160 ($80 × 2 days) advance for the 2 days you did not travel. For the 3 days you did travel you do not have to return the $63 difference between the allowance you received and the federal rate for Phoenix (($80 − $59) × 3 days). However, the $63 will be reported on your Form W-2 as wages. taxmap/pub17/p17-149.htm#en_us_publink100034526
A nonaccountable plan is a reimbursement or expense allowance arrangement that does not meet one or more of the three rules listed earlier under Accountable Plans.
In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan.
If you are not sure if the reimbursement or expense allowance arrangement is an accountable or nonaccountable plan, ask your employer.taxmap/pub17/p17-149.htm#en_us_publink100034527
Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay. Your employer will report the total in box 1 of your Form W-2.
You must complete Form 2106 or 2106-EZ and itemize your deductions to deduct your expenses for travel, transportation, meals, or entertainment. Your meal and entertainment expenses will be subject to the 50% limit discussed earlier under Entertainment Expenses.
Also, your total expenses will be subject to the 2%-of-adjusted-gross-income limit that applies to most miscellaneous itemized deductions on Schedule A (Form 1040).
Kim's employer gives her $1,000 a month ($12,000 for the year) for her business expenses. Kim does not have to provide any proof of her expenses to her employer, and Kim can keep any funds that she does not spend.
Kim is being reimbursed under a nonaccountable plan. Her employer will include the $12,000 on Kim's Form W-2 as if it were wages. If Kim wants to deduct her business expenses, she must complete Form 2106 or 2106-EZ and itemize her deductions.taxmap/pub17/p17-149.htm#en_us_publink100034529
This section briefly describes how employees complete Forms 2106 and 2106-EZ. Table 26-3 explains what the employer reports on Form W-2 and what the employee reports on Form 2106. The instructions for the forms have more information on completing them.
If you are self-employed, do not file Form 2106 or 2106-EZ. Report your expenses on Schedule C, C-EZ, or F (Form 1040). See the instructions for the form that you must file.
You may be able to use the shorter Form 2106-EZ to claim your employee business expenses. You can use this form if you meet all of the following conditions.
- You are an employee deducting expenses attributable to your job.
- You were not reimbursed by your employer for your expenses (amounts included in box 1 of your Form W-2 are not considered reimbursements).
- If you are claiming car expenses, you use the standard mileage rate.
If you used a car to perform your job as an employee, you may be able to deduct certain car expenses. These are generally figured on Form 2106, Part II, and then claimed on Form 2106, Part I, line 1, Column A. Car expenses using the standard mileage rate can also be figured on Form 2106-EZ by completing Part II and Part I, line 1. taxmap/pub17/p17-149.htm#en_us_publink100034533
Show your transportation expenses that did not involve overnight travel on Form 2106, line 2, Column A, or on Form 2106-EZ, Part I, line 2. Also include on this line business expenses you have for parking fees and tolls. Do not include expenses of operating your car or expenses of commuting between your home and work.
Table 26-3. Reporting Travel, Entertainment, Gift, and Car Expenses and Reimbursements
|IF the type of reimbursement (or other expense allowance) arrangement is under:||THEN the employer reports on Form W-2:||AND the employee|
Form 2106: *
|An accountable plan with:|
|Actual expense reimbursement:|
Adequate accounting made and excess returned.
|No amount.||No amount.|
|Actual expense reimbursement:|
Adequate accounting and return of excess both required but excess not returned.
|The excess amount as wages in box 1.||No amount.|
|Per diem or mileage allowance up to the federal rate:|
Adequate accounting made and excess returned.
|No amount.||All expenses and reimbursements only if excess expenses are claimed. Otherwise, form is not filed.|
|Per diem or mileage allowance up to the federal rate:|
Adequate accounting and return of excess both required but excess not returned.
|The excess amount as wages in box 1. The amount up to the federal rate is reported only in box 12—it is not reported in box 1. ||No amount.|
|Per diem or mileage allowance exceeds the federal rate:|
Adequate accounting up to the federal rate only and excess not returned.
|The excess amount as wages in box 1. The amount up to the federal rate is reported only in box 12—it is not reported in box 1. ||All expenses (and reimbursement reported on Form W-2, box 12) only if expenses in excess of the federal rate are claimed. Otherwise, form is not required. |
|A nonaccountable plan with:|
|Either adequate accounting or return of excess, or both, not required by plan||The entire amount as wages in box 1.||All expenses.|
|No reimbursement plan:||The entire amount as wages in box 1.||All expenses.|
|* You may be able to use Form 2106-EZ. See Completing Forms 2106 and 2106-EZ. |
Show your other employee business expenses on Form 2106, lines 3 and 4, Column A, or Form 2106-EZ, lines 3 and 4. Do not include expenses for meals and entertainment on those lines. Line 4 is for expenses such as gifts, educational expenses (tuition and books), office-in-the-home expenses, and trade and professional publications.
If line 4 expenses are the only ones you are claiming, you received no reimbursements (or the reimbursements were all included in box 1 of your Form W-2), and the Special Rules discussed later do not apply to you, do not complete Form 2106 or 2106-EZ. Claim these amounts directly on Schedule A (Form 1040), line 21. List the type and amount of each expense on the dotted lines and include the total on line 21.
Show the full amount of your expenses for business-related meals and entertainment on Form 2106, line 5, Column B. Include meals while away from your tax home overnight and other business meals and entertainment. Enter 50% of the line 8, column B, meal and entertainment expenses on line 9, Column B.
If you file Form 2106-EZ, enter the full amount of your meals and entertainment on the line to the left of line 5 and multiply the total by 50%. Enter the result on line 5. taxmap/pub17/p17-149.htm#en_us_publink100034537
If you are subject to the Department of Transportation's "hours of service" limits, use 80% instead of 50% for meals while away from your tax home. taxmap/pub17/p17-149.htm#en_us_publink100034538
Enter on Form 2106, line 7, the amounts your employer (or third party) reimbursed you that were not included in box 1 of your Form W-2. (You cannot use Form 2106-EZ.) This includes any reimbursement reported under code L in box 12 of Form W-2.taxmap/pub17/p17-149.htm#en_us_publink100034539
If you were reimbursed under an accountable plan and want to deduct excess expenses that were not reimbursed, you may have to allocate your reimbursement. This is necessary if your employer pays your reimbursement in the following manner:
- Pays you a single amount that covers meals and/or entertainment, as well as other business expenses, and
- Does not clearly identify how much is for deductible meals and/or entertainment.
You must allocate that single payment so that you know how much to enter on Form 2106, line 7, Column A and Column B.
Rob's employer paid him an expense allowance of $12,000 this year under an accountable plan. The $12,000 payment consisted of $5,000 for airfare and $7,000 for entertainment and car expenses. Rob's employer did not clearly show how much of the $7,000 was for the cost of deductible entertainment. Rob actually spent $14,000 during the year ($5,500 for airfare, $4,500 for entertainment, and $4,000 for car expenses).
Since the airfare allowance was clearly identified, Rob knows that $5,200 of the payment goes in Column A, line 7 of Form 2106. To allocate the remaining $7,000, Rob uses the worksheet from the instructions for Form 2106. His completed worksheet follows.
|1.||Enter the total amount of reimbursements your employer gave you that were not reported to you in box 1 of Form W-2||$7,000 |
|2.||Enter the total amount of your expenses for the periods covered by this reimbursement|| 8,500 |
|3.||Of the amount on line 2, enter your total expense for meals and entertainment|| 4,500 |
|4.||Divide line 3 by line 2. Enter the result as a decimal (rounded to at least three places)|| .529 |
|5.||Multiply line 1 by line 4. Enter the result here and in Column B, line 7|| 3,703 |
|6.||Subtract line 5 from line 1. Enter the result here and in Column A, line 7||$3,297 |
On line 7 of Form 2106, Rob enters $8,297 ($5,000 airfare and $3,297 of the $7,000) in Column A and $3,703 (of the $7,000) in Column B.
After you have completed your Form 2106 or 2106-EZ, follow the directions on that form to deduct your expenses on the appropriate line of your tax return. For most taxpayers, this is line 21 of Schedule A (Form 1040). However, if you are a government official paid on a fee basis, a performing artist, an Armed Forces reservist, or a disabled employee with impairment-related work expenses, see Special Rules,
Your employee business expenses may be subject to any of the three limits described next. These limits are figured in the following order on the specified form.taxmap/pub17/p17-149.htm#en_us_publink100034543
Certain meal and entertainment expenses are subject to a 50% limit. If you are an employee, you figure this limit on line 9 of Form 2106 or line 5 of Form 2106-EZ. See 50% Limit
under Entertainment Expenses,
If you are an employee, deduct employee business expenses (as figured on Form 2106 or 2106-EZ) on line 21 of Schedule A (Form 1040). Most miscellaneous itemized deductions, including employee business expenses, are subject to a 2% limit. This limit is figured on line 26 of Schedule A (Form 1040). taxmap/pub17/p17-149.htm#en_us_publink100034545
If your adjusted gross income (line 38 of Form 1040) is more than $159,950 ($79,975 if you are married filing separately), the total of certain itemized deductions, including employee business expenses, may be limited. See chapter 29
for more information on this limit.
This section discusses special rules that apply to Armed Forces reservists, government officials who are paid on a fee basis, performing artists, and disabled employees with impairment-related work expenses.taxmap/pub17/p17-149.htm#en_us_publink100034547
If you are a member of a reserve component of the Armed Forces of the United States and you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you can deduct your travel expenses as an adjustment to gross income rather than as a miscellaneous itemized deduction. The amount of expenses you can deduct as an adjustment to gross income is limited to the regular federal per diem rate (for lodging, meals, and incidental expenses) and the standard mileage rate (for car expenses) plus any parking fees, ferry fees, and tolls. The federal rate is explained earlier under Per Diem and Car Allowances
. Any expenses in excess of these amounts can be claimed only as a miscellaneous itemized deduction subject to the 2% limit.
You are a member of a reserve component of the Armed Forces of the United States if you are in the Army, Navy, Marine Corps, Air Force, or Coast Guard Reserve, the Army National Guard of the United States, the Air National Guard of the United States, or the Reserve Corps of the Public Health Service.taxmap/pub17/p17-149.htm#en_us_publink100034549
If you have reserve-related travel that takes you more than 100 miles from home, you should first complete Form 2106 or Form 2106-EZ. Then include your expenses for reserve travel over 100 miles from home, up to the federal rate, from Form 2106, line 10, or Form 2106-EZ, line 6, in the total on Form 1040, line 24. Subtract this amount from the total on Form 2106, line 10, or Form 2106-EZ, line 6, and deduct the balance as an itemized deduction on Schedule A (Form 1040), line 21.
You cannot deduct expenses of travel that does not take you more than 100 miles from home as an adjustment to gross income. Instead, you must complete Form 2106 or 2106-EZ and deduct those expenses as an itemized deduction on Schedule A (Form 1040), line 21.taxmap/pub17/p17-149.htm#en_us_publink100034550
Certain fee-basis officials can claim their employee business expenses whether or not they itemize their other deductions on Schedule A (Form 1040).
Fee-basis officials are persons who are employed by a state or local government and who are paid in whole or in part on a fee basis. They can deduct their business expenses in performing services in that job as an adjustment to gross income rather than as a miscellaneous itemized deduction.
If you are a fee-basis official, include your employee business expenses from Form 2106, line 10, or Form 2106-EZ, line 6, on Form 1040, line 24.taxmap/pub17/p17-149.htm#en_us_publink100034551
If you are a performing artist, you may qualify to deduct your employee business expenses as an adjustment to gross income rather than as a miscellaneous itemized deduction. To qualify, you must meet all of the following requirements.
- During the tax year, you perform services in the performing arts as an employee for at least two employers.
- You receive at least $200 each from any two of these employers.
- Your related performing-arts business expenses are more than 10% of your gross income from the performance of those services.
- Your adjusted gross income is not more than $16,000 before deducting these business expenses.
If you are married, you must file a joint return unless you lived apart from your spouse at all times during the tax year.
If you file a joint return, you must figure requirements (1), (2), and (3) separately for both you and your spouse. However, requirement (4) applies to your and your spouse's combined adjusted gross income. taxmap/pub17/p17-149.htm#en_us_publink100034553
If you meet all of the above requirements, you should first complete Form 2106 or 2106-EZ. Then you include your performing-arts-related expenses from line 10 of Form 2106 or line 6 of Form 2106-EZ in the total on line 24 of Form 1040.
If you do not meet all of the above requirements, you do not qualify to deduct your expenses as an adjustment to gross income. Instead, you must complete Form 2106 or 2106-EZ and deduct your employee business expenses as an itemized deduction on Schedule A (Form 1040), line 21. taxmap/pub17/p17-149.htm#en_us_publink100034554
If you are an employee with a physical or mental disability, your impairment-related work expenses are not subject to the 2%-of-adjusted-gross-income limit that applies to most other employee business expenses. After you complete Form 2106 or 2106-EZ, enter your impairment-related work expenses from Form 2106, line 10, or Form 2106-EZ, line 6, on Schedule A (Form 1040), line 28, and identify the type and amount of this expense on the dotted line next to line 28. Enter your employee business expenses that are unrelated to your disability from Form 2106, line 10, or Form 2106-EZ, line 6, on Schedule A, line 21.
Impairment-related work expenses are your allowable expenses for attendant care at your workplace and other expenses you have in connection with your workplace that are necessary for you to be able to work. For more information, see chapter 21
Bill Wilson is an employee of Fashion Clothing Co. in Manhattan, NY. In a typical travel week, Bill leaves his home on Long Island on Monday morning and drives to Albany to exhibit the Fashion line for 3 days to prospective customers. Then he drives to Troy to show Fashion's new line of merchandise to Town Department Store, an old customer. While in Troy, he talks with Tom Brown, purchasing agent for Town Department Store, to discuss the new line. He later takes John Smith of Attire Co. out to dinner to discuss Attire Co.'s buying Fashion's new line of clothing.
Bill purchased his car on January 3, 2005. He uses the standard mileage rate for car expense purposes. He records his total mileage, business mileage, parking fees, and tolls for the year. Bill records his expenses and other pertinent information in a travel expense log (not shown). He obtains receipts for his expenses for lodging and for any other expenses of $75 or more.
During the year, Bill drove a total of 25,000 miles of which 20,000 miles were for business (11,000 miles from January 1 through June 30, and 9,000 miles from July 1 through December 31, 2008). He answers all the questions in Part II of Form 2106-EZ and figures his car expense to be $10,820 (11,000 × 501/2 cents per mile ($5,555) + 9,000 × 581/2 cents per mile ($5,265)).
His total employee business expenses are shown in the following table.
| Type of Expense || Amount |
| Parking fees and tolls||$ 520 |
| Car expenses||10,820 |
| Meals||3,861 |
| Lodging, laundry, dry|
| Entertainment||3,250 |
| Gifts, education, etc.||650 |
Bill received an allowance of $33,000 ($2,750 per month) to help offset his expenses. Bill did not have to account to his employer for the reimbursement, and the $33,000 was included as income in box 1 of his Form W-2.
Because Bill's reimbursement was included in his income and he is using the standard mileage rate for his car expenses, he files Form 2106-EZ with his tax return. His filled-in form is shown on the next page.