Home Office Tax Deductions for Employees & Legal Requirements

Before 2018, an employee could apply a home office deduction to part of their home by meeting the same requirements that a business owner would meet, in addition to passing the convenience of the employer test. This is much more complex than claiming a home office deduction as the owner of a business.

Qualifying for the Basic Home Office Deduction

Any employee who wanted to claim a home office deduction before 2018 must have used part of their home exclusively for their work on a regular basis. This means that they had dedicated a certain area of their home to business use, rather than any personal use. Mixed-use areas did not qualify for the deduction.

Also, anyone who wanted to claim the deduction must have used their home as their principal place of business, or they must have conducted administrative work at home. Employees could face difficulties showing that their home was their principal place of business unless their employer allowed them to work from home most of the time. If they did their most important work at their employer’s office, or if they spent more than half of their time at the office, their home would not qualify as their principal place of business. However, they might have met the administrative work requirement if they handled administrative or management tasks in their home and did not handle those tasks anywhere else. These tasks might involve keeping records, handling bills, ordering supplies, or writing reports, among other examples.

If they used a structure other than their home exclusively and regularly for work, they might have been able to apply the home office deduction to this structure. The structure must not have been used for any personal purposes, but it did not need to be their principal place of business, nor used on a daily basis.

Meeting the Convenience of Employer Test

In addition to meeting the basic requirements, an employee must have been able to show that the home office was not just for their convenience but instead for the convenience of their employer. There were three main ways to meet this test. A home office would qualify if it was a condition of employment, necessary to perform the employee's duties effectively, or necessary for the employer’s business to function effectively.

If an employee simply preferred to work at home or felt that they were more productive at home, this was not enough to meet the convenience of employer test. On the other hand, if the employer required the employee to work outside business hours when the office was closed, they might have been able to claim the home office deduction because they were required to work at home. Some businesses do not have an office or do not have an office that can accommodate all of their employees. In these situations, an employee was more likely to meet the convenience of employer test.

Since this deduction is not currently available and most employees cannot meet all of these requirements, employees may want to ask their employer to reimburse them for expenses related to a home office. If the employer agrees, these costs will not count as taxable income.

Last reviewed October 2024