As the pandemic ramped up, millions of employees shifted to remote work. According to a Federal Reserve Bank of Dallas report, 35.2% of employees worked from home in May, compared to only 8.2% in February. If you’re now fully remote, you may be eager to see if you’re eligible for a home office tax break—but the eligibility rules can be confusing. Here’s what to know.
Employee vs. self-employed
The key to unlocking the home office tax deduction is your employment status. Most full-time workers are W-2 employees. This means they go through the company’s payroll—and may have income, Social Security, and Medicare taxes withheld from each paycheck. Why this matters: W-2 employees can’t deduct unreimbursed job-related expenses through 2025 thanks to the Tax Cut and Jobs Act.
But if you’re a contract worker, aka a 1099 employee, you are considered self-employed—and may qualify for the home office tax deduction. It may also be possible to deduct expenses like part of your internet bill, cell phone bill, or other work-related costs.
What qualifies as a home office
While it may be tempting to take the home office deduction, there are some specific rules to follow. For starters, your home office must qualify as “exclusive and regular use” and the “principal place of your business,” according to the IRS. It must be a designated space (i.e. not your kitchen table) that you only use for work. The IRS shares a couple of examples:
You can deduct expenses for a separate free-standing structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business. The structure does not have to be your principal place of business or the only place where you meet patients, clients, or customers.
Generally, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities.
There’s a full explanation of exactly what qualifies for the home office tax deduction in Publication 587. (There isn’t a new version for 2020 yet.)
How to claim the home office deduction
This deduction goes on Form 8829, which is paired with Schedule C, your form for business profit or loss. This means you can still claim the home office tax break even if you take the standard deduction—and don’t itemize deductions—on Form 1040.
There are two options to calculate the home office deduction: the simplified option or the regular method. If you’re struggling with these calculations—or whether your office qualifies—you should speak with a tax professional.
