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If you receive an advance to pay for your employee business expenses, or reimbursements for expenses you have already incurred, the way you report your expense depends on how your employer reimburses you.
The key distinction to be made is whether the employer's plan is "accountable" or "nonaccountable." Your employer should be able to tell you which type it is using.
Accountable plans. If the plan is accountable, and you are reimbursed for the exact amount of the expense, you are among the lucky ones. Your reimbursements are simply excluded from your income that is, they are not reported as income on your W-2 form, and you don't have to pay income tax, Social Security tax, or Medicare tax on them. You don't have to file a Form 2106 to claim your expenses as deductions because they are already subtracted from your pay.
Under accountable plans, you report your expenses to the employer, and provide it with all the receipts, credit card slips, and other documentation you would normally need for the IRS. This takes the place of retaining all these records in case the IRS asks for them.
Nonaccountable plans. However, if the plan is not considered accountable, or if your employer does not reimburse you for all of your allowable expenses, you'll have to claim the deductions on your tax return.
Your employer will include any reimbursements it makes in your taxable income (in Box 1 on your W-2), and will withhold income tax, Social Security tax, and Medicare tax on them. Any reimbursements that are not reported in Box 1 must be subtracted from your deductible expenses on Form 2106, Employee Business Expenses.
If you are not reimbursed for your employee business expenses (other than taxable amounts included in Box 1), you can generally report your expenses on Form 2106-EZ, Unreimbursed Employee Business Expenses, provided that if you are claiming vehicle expenses, you are using the standard mileage rate (SMR) to compute your expenses.
If you use the actual expense method of claiming car expenses, or if you were reimbursed for expenses, you will have to use the longer Form 2106, Employee Business Expenses.
Some special rules. Qualified performing artists, and disabled employees with impairment-related work expenses, are subject to some special, more lenient ways to claim their employee business expenses.
A qualified performing artist can deduct employee business expenses as an adjustment to gross income (on Line 24 of Form 1040). As a result, such artists don't need to itemize expenses to get the benefits of their deductions. They would still need to complete Form 2106 to compute their expenses, and then write the total amount on Line 24 of the 1040.
Qualified performing artists are those who perform services for at least two employers during the tax year; receive at least $200 from two different employers; have related performing-arts business expenses over 10 percent of their gross income; and have adjusted gross income of not more than $16,000 before deducting those expenses. If married, the artist must file jointly unless living apart from the spouse at all times during the tax year, and joint adjusted gross income may not be more than $16,000 before deducting the expenses.
Employees with physical or mental disabilities, who have impairment-related work expenses, can deduct those expenses without regard to the usual 2 percent of adjusted gross income threshold for miscellaneous deductions. They would complete Form 2106 or 2106-EZ, and enter impairment-related expenses directly onto Line 28 of Schedule A, Itemized Deductions.
National Guard and reserve members also get special consideration. Those who travel over 100 miles from home to perform services as an armed forces reservist get to claim related business expenses on Line 24 of Form 1040 after completing Form 2106.
A "qualified educator" can deduct up to $250 of "qualified expenses" paid in 2011. (If both spouses are educators, they can claim up to $500 on a joint return - but each spouse is limited to a maximum of $250.)
A qualified educator is a Kindergarten through 12th grade teacher, instructor, principal or aide who worked in a school for at least 900 hours during the school year. Homeschoolers are not eligible for this deduction.
Qualified expenses are ordinary and necessary books, supplies, equipment (including computers and computer-related equipment) and other materials used in the classroom. The amount claimed must be reduced by the following: (1) excludable U.S. series EE and I savings bond interest; (2) nontaxable qualified tuition program earnings or distributions; (3) nontaxable Coverdell education saving account earning distributions and (4) any reimbursements you received for these expenses that were not reported as income in Box 1 of your Form W-2.
This deduction is claimed on Form 1040, Line 23. It is an "above the line" deduction, which means that you do not have to itemize your deductions in order to claim it.