Working From Home looks a lot different today than it did just three years ago. The acronym WFH is no longer solely for independent contractors and the self-employed. Although some companies embraced Working From Home as an option before the Covid-19 pandemic, it blew up by necessity during it. In fact, in September of 2022, the US Census Bureau released data from the 2021 American Community Survey that showed that the number of Working From Home employees tripled from 5.7% in 2019 to 17.9% in 2021.
According to an article from Time, working from home has been the biggest change in U.S. labor markets since World War II. Smaller businesses may have had to return to work much sooner than large corporations but, as the Omicron variant came and went in early 2022, the option to return to the office resurfaced among many in the tech, finance, and professional fields. Although by then, much had changed. The US workforce went through the Great Resignation and the Great Retirement, and now faced the Great Return.
The New Landscape
Many employees who had a pandemic-induced, Working From Home situation experienced new kinds of benefits including a better work/life balance, and actual monetary savings. The tight labor market and effort to retain staff, led companies to start offering some version of the Working From Home arrangement. The Survey of Working Arrangements and Attitudes (SWAA) conducted by Working From Homeresearch.com showed that as of the 4th Quarter of 2022, 13% of full-time employees were fully remote, 58% were full-time on-site, and 29% were on a hybrid schedule.
Remote Employee – Tax Deductions
Although the pandemic may have caused the biggest shift from company cubicles to home offices, one benefit still remains out of reach for the remote employee. The home office deduction is still for the self-employed. The clarifying factor is the W2. If you receive one, you are ineligible for home office deductions. This is a relatively new tax law that began in 2018. The Tax Cut and Jobs Act eliminated home office deductions for W-2 employees, even when those expenses are pretty hefty. The only caveat to this is if those expenses take you below minimum wage
Remote Employee – Savings
Even if the IRS doesn’t give you the tax deduction green light, there are many benefits and savings to Working From Home.
Savings and Benefits:
- Commuting and Public Transportation. No commute means no money spent on gas for work purposes, less wear and tear on your vehicle, and possibly better insurance rates. There is zero cost for public transportation when all you need to take are the steps to your home workspace.
- Time savings. Less time driving to work means more you time and possibly to the benefit of your employer, more work time.
- Clothing. You only have to be Zoom-ready from the waist up.
- Lunch/Dinner/Caffeine. You can save a great deal by grabbing lunch from your refrigerator or cabinet not to mention fewer trips to expensive coffee houses.
- Reimbursement. While federal law does not require an employer to reimburse for at-home, work-related expenses, a handful of states do. New Jersey, unfortunately, is not one of them but some employers may offer such reimbursements. Have you checked with your employer?
Working From Home (Self-Employed) – Tax Deductions
If you start conversations by saying, “I was Working From Home before it was cool,” then you might be self-employed. Deductions for the self-employed are a whole other ballgame and allow those eligible to reduce taxable income by subtracting the deductions claimed against annual income. Here’s two ways to calculate your home office deductions. Investopedia explains this process in greater detail but here’s a quick summary:
- The standard method requires you to keep detailed records of office expenses like paper, printer ink, supplies, etc. in the event of an IRS audit.
- The second option lets you multiply an IRS-determined rate by your home office’s square footage. However, the space must not be larger than 300 square feet. If you choose this calculation, you cannot include the itemized home-related deductions mentioned in the first option.
Talk it over with your CPA to determine which option will keep your costs low while increasing your profit margin.
Whether in the workplace full-time, Working From Home, or a bit of both (Hybrid), one thing is for certain: the pandemic forced us all to take a closer look at our lives. That downtime caused many Americans to reevaluate what is most important to them. Some retired early, ready to step down from the rat race. Some started up new businesses, ready to jump into self-employment. Many switched fields, searching for passion. For sure, Working From Home expanded our possibilities. If you’re among those in the Working From Home force, be sure to capture your eligible savings this tax season.