How the Tax Cuts and Jobs Act Affects Employees

Employees lost many valuable job-related tax deductions under the Tax Cuts and Jobs Act.

By , J.D.

The Tax Cuts and Jobs Act (TCJA), the most significant tax reform in a generation, took effect in 2018. The TCJA had and continues to have an enormous impact on all American taxpayers. Many people pay less tax than they used to. But millions of employees who itemized their deductions on their tax returns lost valuable tax job-related deductions. So, some people ended up paying more. But you might be able to avoid this sad fate.

No Deduction for Unreimbursed Employee Expenses

Before 2018, employees who incurred out-of-pocket expenses to perform their jobs were entitled to claim a deduction to the extent such expenses weren't reimbursed by the employer. These expenses were an itemized personal deduction claimed on IRS Schedule A and were deductible only if, and to the extent, they exceeded 2% of the employee's adjusted gross income (AGI). Deductible employee expenses included:

  • job-related mileage (not including personal commuting to and from home and the workplace)
  • long-distance travel expenses
  • uniforms and work clothes
  • continuing education expenses required for a current job
  • job search expenses for the same occupation
  • work-related dues, including union dues and subscriptions
  • a home computer used for work, and
  • home offices used for the convenience of the employer.

In 2015, 14.6 million taxpayers claimed unreimbursed employee expenses for a total of more than $96 billion.

The TCJA completely eliminated the deduction for unreimbursed employee expenses for 2018 through 2025. This means, for example, that an employee salesperson who spends $5,000 per year out of pocket driving for work can't deduct the expense. The deduction is scheduled to return in 2026.

No Deduction for Unreimbursed Employee Moving Expenses

Employees were also allowed to deduct moving expenses incurred to move to a new job if the new workplace was at least 50 miles farther from the taxpayer's former residence than the previous place of work. This deduction was a highly valuable "above the line" deduction not subject to the 2% of AGI limit, and that could be taken without itemizing. The TCJA eliminated this deduction during 2018 through 2025, except for members of the Armed Forces on active duty who move pursuant to a military order and incident to a permanent change of station.

Elimination of Some Tax-Free Employee Fringe Benefits

The tax law permits employers to provide their employees with certain types of fringe benefits tax-free—that is, employees don't have to pay any tax on the value of these benefits. The most significant tax-free fringe benefit is health insurance, but many others exist as well. Under prior law, employers were allowed to provide employees:

  • reimbursement to move to a new job location at least 50 miles farther from the employee's former residence than the previous place of work and
  • up to $20 per month to employees who commuted to work by bicycle.

These benefits are no longer tax-free during 2018 through 2025. Your employer can continue to provide them, but you'll have to pay income tax on their value.

Employers may provide transportation fringe benefits of up to $280 per month tax-free to employees in 2022 ($270 in 2021), including payment for parking expenses, transit passes, and transportation in a commuter highway vehicle ("vanpooling"). However, employers aren't able to deduct the cost of these benefits, making them much more expensive to provide.

What to Do

You should seek to have your employer reimburse or directly pay you for all your work-related expenses instead of paying them out of your own pocket. This type of payment or reimbursment is actually required in some states. For example, California requires employers to reimburse their employees "for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties." (Calif. Labor Code § 2802.)

By far, the most common unreimbursed employee expense is job-related mileage (not including personal commuting to and from home and your workplace, which isn't deductible). If you drive a lot for work, ask your employer reimburse you because this cost isn't deductible. These reimbursements would be tax-free to you, the employee, so long as you adequately account for your mileage. They're also tax-deductible by your employer. Alternatively, your employer could provide you with a company car, which would also be tax-free if you only use it for work-related driving (not including personal commuting).

Reimbursement for your work-related mileage is tax-free to you (as long as you properly account for your mileage). So, if your employer isn't legally required to reimburse you for your mileage, it would be worth your while to accept a reduction in salary in return for receiving such reimbursement. For example, if you spend $5,000 per year to drive for work, you could offer to take a $5,000 salary reduction in return for your employer reimbursing you for your mileage. The $5,000 reimbursement is tax-free to you and fully deductible by your employer. You end up saving the tax on $5,000 that you otherwise would have had to pay if you had taken it in salary instead of mileage reimbursement.

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