Working From Home: Deductibility Rules for Remote Employees

Quick overview

Remote-work deductibility hinges on two basic facts: your worker status (self-employed vs. employee) and how the IRS defines “business use of your home.” Self-employed taxpayers can generally claim a home-office deduction if they meet IRS tests; most W‑2 employees cannot deduct unreimbursed home or job expenses on their federal return through 2025 because of the Tax Cuts and Jobs Act (TCJA) suspension. For details, see the IRS guidance on the home office deduction and Publication 587 (Business Use of Your Home) (IRS).

Who can actually claim home‑office or remote‑work deductions?

• Self‑employed (Schedule C or equivalent): Eligible to claim the home‑office deduction if you meet the IRS tests. Use the regular method (Form 8829) or the simplified method ($5 per sq. ft., up to 300 sq. ft.). (IRS Publication 587, Home Office Deduction)
• W‑2 employees: Generally cannot claim unreimbursed employee business expenses on federal returns from tax years 2018–2025 because of the TCJA. Exceptions are narrow and statutory (e.g., certain performing artists, qualified reservists, fee-basis government officials, and disability-related work expenses). If your employer reimburses you under an accountable plan, the reimbursement is excluded from income and you do not need a deduction. (IRS)
• State tax rules: Some states still allow deductions for unreimbursed employee expenses even when the federal government does not. Check state guidance or consult a tax advisor.

IRS qualification tests for a home office

To deduct home-office expenses under the regular or simplified methods, you must meet these tests:

• Exclusive and regular use: You must use a defined area of your home exclusively and regularly for business. Occasional personal use typically disqualifies the space.
• Principal place of business: The home must be your principal place of business. If you conduct administrative or management tasks there and have no other fixed location for those activities, that usually qualifies.
• Trade or business: The deduction is for business use related to a trade or business — most commonly used by sole proprietors, independent contractors, and those filing Schedule C.

These rules and examples are summarized in IRS Publication 587 and the Home Office Deduction guidance (IRS).

How the two calculation methods work

1) Regular (actual expense) method

• Track actual expenses and allocate business percentage by dividing the area of the office by the total home area (square footage) or by the number of rooms if roughly equivalent.
• Direct expenses (repairs or improvements to the office itself) are fully deductible for the business portion.
• Indirect expenses (mortgage interest, insurance, utilities, depreciation, property taxes) are prorated by the business percentage and claimed on Schedule C and Form 8829 when you’re self‑employed.
• If you use the regular method, you must keep receipts and records for each expense and compute depreciation when applicable. (IRS Publication 587)

2) Simplified method

• A standard rate of $5 per square foot, limited to 300 square feet (maximum deduction $1,500).
• No depreciation calculation and less recordkeeping for shared costs, but you cannot claim business-use depreciation if you choose the simplified method.
• To use this method, you still must meet the exclusive and regular use and principal place of business tests. (IRS Home Office Deduction page)

In my practice, the simplified method often makes sense for small home offices (under ~200 sq. ft.) where tracking each utility and repair would be time-consuming. The break-even point depends on your specific mortgage, insurance, and utility costs.

Common deductible items and where they are reported (self‑employed)

• Direct expenses: Office-only repaint, new lighting for the office (fully deductible).
• Indirect expenses: Mortgage interest, property taxes (business portion), homeowners insurance, utilities, general repairs, and depreciation (pro rata).
• Office equipment and supplies: Computers, printers, software and consumables are typically deductible as business expenses on Schedule C or under Section 179/bonus rules where applicable.

Note: Mortgage interest and property taxes for the portion used for business are generally taken on Schedule C when claimed as part of the business-use allocation; you should review Publication 587 for how this interacts with Schedule A itemized deductions.

Why most W‑2 employees cannot claim these deductions (and what to do instead)

The TCJA suspended miscellaneous itemized deductions subject to the 2% AGI floor through 2025. That suspension prevents most employees from claiming unreimbursed business expenses, including home-office costs, on Schedule A. The practical implications:

• If you’re an employee working remotely, you generally cannot deduct your home-office expenses on your federal return.
• If your employer offers an accountable reimbursement plan for remote‑work expenses (receipts required and excess reimbursements returned), that reimbursement is tax-free and is the best outcome for employees.
• If your employer will not reimburse, consider asking for an accountable plan or a paid allowance; employers can deduct the payments and avoid taxing them if handled correctly.

For a deeper look at how this changed post‑TCJA, see our guide: “Deductions for Work‑From‑Home Employees: What Changed” (FinHelp).

Recordkeeping and documentation (audit‑focused)

Good records reduce audit risk and make a deduction defensible:

• Floorplan and square‑footage calculation: Keep a dated sketch or photo of the office and include the math for your percentage.
• Receipts and invoices: Keep copies for utilities, repairs, equipment, and reimbursed items.
• Usage log: For part‑time business use cases (rarely qualifying under exclusive‑use rules), note dates and purpose — but remember exclusive use generally disqualifies part‑time shared spaces.
• Employer statements: Keep written reimbursement policies or denials from your employer; these are useful if you’re pursuing a state deduction or discussing benefits with HR.

FinHelp has a practical checklist in “How to Track Work‑From‑Home Expenses for Tax Time” to help organize receipts and logs.

Audit red flags and common mistakes

• Claiming a room that is also used personally (TV, family room) — violates exclusive‑use test.
• Overstating square footage percentage — auditors routinely verify by floor plans and local property records.
• Mixing up employee vs. self‑employed rules — employee claims on federal returns can be disallowed.
• Failing to show that the home is the principal place of business when you have a regular office outside the home.

The IRS publishes guidance on what auditors look for. Our article “What the IRS Looks for in Small‑Scale Home Office Audits” explains common triggers and defensive documentation.

Practical examples

• Self‑employed web developer: Uses a dedicated bedroom as an office (150 sq. ft. in a 1,200 sq. ft. home = 12.5%). Under the regular method, she prorates utilities and part of mortgage interest; under the simplified method she could claim $750 (150 x $5).

• Remote W‑2 customer support rep: Employer does not reimburse internet or office supplies. Under current federal rules the rep cannot claim those expenses on Schedule A for 2018–2025. He should request an accountable reimbursement plan or check for state-level deductions.

What to do next (checklist)

1. Confirm worker status: Are you self‑employed or a W‑2 employee?
2. Measure and document the office area and take dated photos.
3. Choose a method: simplified or regular method — run both calculations to compare.
4. Keep receipts, utility bills, and employer communications. Keep records for at least three years (longer if you claim depreciation).
5. Consult a tax professional if you have mixed uses, multi‑state filing issues, or complex mortgage/property tax interactions.

State rules and multistate considerations

If you work remotely for an employer in another state, or you live and work across state lines, state tax treatments and reimbursement rules can vary. Check your state revenue department guidance or our coverage on “Remote Work and State Residency: Avoiding Multistate Tax Surprises” (FinHelp).

Bottom line and professional advice

The home‑office deduction is a valuable tax benefit for self‑employed people who meet the IRS tests. For most W‑2 employees, federal deductions for unreimbursed home office and remote expenses are not available through 2025. In my practice, I recommend documenting everything, running both deduction methods for self‑employed clients, and pushing employers to offer accountable reimbursement plans for remote workers — it’s often the simplest and cleanest outcome.

Professional disclaimer: This article is educational and does not constitute tax advice. Individual circumstances differ; consult a licensed tax professional or the IRS publications linked below before making tax decisions.

Authoritative sources

• IRS — Home Office Deduction (business use of your home): https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction
• IRS — Publication 587, Business Use of Your Home: https://www.irs.gov/publications/p587
• IRS — Tax Tips for Working From Home: https://www.irs.gov/newsroom/tax-tips-for-working-from-home

Related FinHelp articles

• Home Office Deduction: https://finhelp.io/glossary/home-office-deduction/
• Deductions for Work‑From‑Home Employees: What Changed: https://finhelp.io/glossary/deductions-for-work-from-home-employees-what-changed/
• How to Track Work‑From‑Home Expenses for Tax Time: https://finhelp.io/glossary/how-to-track-work-from-home-expenses-for-tax-time/