Form 2106 (Employee Business Expenses)

What is Form 2106 (Employee Business Expenses) ?

The Internal Revenue Service (IRS) provides Form 2106: Employee Business Expenses to individuals so they can claim their ordinary and necessary business expenses. Ordinary expenses are those that are commonly recognized and customary in a given industry, whereas required expenses are those that are necessary for operating a business.

Form 2106 is for workers who incur business costs while executing their employment but do not get paid by their employers in the form of allowances or reimbursements. You can make an above-the-line adjustment to income for employee business expenses by including IRS Form 2106 with your federal Form 1040 tax return. The deduction is only available to a few particular workers, such as performing artists who are employed.

For the majority of taxpayers, unreimbursed employee business expenses were no longer allowable tax deductions beginning with the 2018 tax year. Armed Forces reservists, eligible performing artists, fee-based state and local government officials, and workers with impairment-related job expenditures are the only individuals who can currently use Form 2106. Before 2018, any employee who incurred unreimbursed business expenditures could claim those costs as a miscellaneous itemized deduction on Form 2106.

How Does Form 2106 Works ?

The form also came in another variation. Employees claiming a tax deduction for unreimbursed expenses connected to their jobs used the simplified Form 2106-EZ: Unreimbursed Employee Business Expenses. Following the implementation of the Tax Cuts and Jobs Act (TCJA), this form was no longer used after 2018.

The employee business expenditure deduction was a miscellaneous deduction for the majority of taxpayers who are employees and itemized their deductions before 2018, provided that such amounts did not exceed 2% of their adjusted gross income (AGI). Due to the 2018 tax overhaul, the majority of taxpayers cannot take this deduction until 2025. Taxpayers who work in certain professions can still claim their business costs by filing Form 2106; they are not required to itemize.

Taxpayers who itemized for years before to 2019 may still use Form 2106 if they have unfilled tax returns that need to be filed.

According to the IRS, these expenses include: A common and recognised expense in your line of work, business, or profession is one that qualifies as ordinary. An cost that benefits and is appropriate for your business is one that is necessary. A cost need not be required in order to be deemed necessary. This may cover a range of daily costs, such as:
  • Work-related meals
  • Mileage
  • Lodging
  • Transportation
  • Even things such as cash tips for valet services are deductible through Form 2106, as long as you qualify.

Key Facts of Form 2106

  • To categorize and total "ordinary and necessary" business expenses that aren't covered by your employer, use Form 2106, a document provided by the IRS.
  • Armed Forces reservists, qualifying performing artists, fee-based state or local government officials, and employees with work-related expenses due to an impairment utilize this form.
  • Only a few qualifying professions—such as performing artists who operate as employees—are reported on IRS Form 2106, which lists deductible employee business costs to the IRS.
  • Form 2106 is available on the IRS website, and you can e-file it along with your Form 1040.
  • Before submitting Form 2106, performing artists must adhere to a number of requirements, such as working for two or more companies and making a minimum of $200 from each position.

Who Can File Form 2106 ?

The following employees, according to the IRS, may submit Form 2106 and claim a full deduction for their company costs without having to itemize :
  • Armed Forces reservist
  • Qualifying performance artist
  • National Guard
  • Fee-basis federal or state government official
  • Employee with disability impairment-related work expenses

In addition to the criteria outlined above, you are qualified to submit Form 2106 if your employer refuses to cover work-related expenses. Independent contractors and self-employed people are eligible for deductions, but they should not use IRS Form 2106 for that purpose.

The bad news is that not all performing artists will be eligible because the qualifications are somewhat stringent. The four primary requirements are as follows:
  • Performing artist who spent the tax year working as an employee for at least two different businesses.
  • Receiving money from at least two of those employers totaling $200 or more.
  • Having 10% or more of your gross income from the performing arts go toward permitted company expenses.
  • Having a performing artist adjusted gross income (AGI) of $16,000 or less before subtracting costs.

What Types of Expenses can be Deducted on Form 2106 ?

The Form 2106 used to submit claims for allowable business expenses, including meals, mileage, and other expenses. Currently, only a select group of taxpayers, including qualified performing artists and members of the military reserves, are permitted to deduct business expenses. Military reserve members who travel more than 100 miles to report for training can submit claims for their mileage, tolls, parking, and overnight accommodations.

The Form 2106 can be used to claim business-related expenditures for qualified performing artists, fee-based state or local government employees, and disabled people with work-related expenses related to their impairment.

The following items could count as deductible business expenses for employees :
  • Tools, software and supplies.
  • Professional journals, media used in research, and other subscriptions, books, and publications.
  • Travel costs between work sites (not commuting from home to work, and back).
  • Occupational clothing required for your job.
  • Conferences.
  • Special items for your employment such as a braille reader, a sign language interpreter, etc.
With the exception of vehicle charges, parking and local travel, overnight travel, and food expenses, the majority of these expenses are listed on Line 4 of Form 2016.

This amount is deducted from the total expenditures claimed in Part I after any employer reimbursement has been deducted from the sum on Line 7. If the employer reimbursement is greater than the declared company expenses, the surplus results in taxable income.

Taxpayers in some professions can still claim this benefit and deduct the full amount of their business expenses without having to itemize, as will be covered in more detail below.

How to Claim Unreimbursed Business Expenses (Form 2106) ?

Participants in the categories eligible to write off unreimbursed business expenses should submit Form 2106 along with their individual tax returns. Depending on your worker classification and the type of your expenses, the deduction may have some restrictions. Before submitting Form 2106, seek advice from a tax expert.

You must fill out the form with the full amount of business costs you spent out of pocket, including any reimbursements received from your company. Even after receiving reimbursement from your employer, it's crucial to keep your receipts.

The educator expense deduction appears on Form 1040 Schedule 1, line 10, unlike other unreimbursed employee expenses.

How to File Form 2106 : Employee Business Expenses?

On the first page of Form 2106, there are only three required sections. If your employer reimbursed you for any of your expenses, proceed to Step 2 after entering your expenses in Step 1. Your W-2 Form's box 12 should have this information with the code "L" there. You will be guided through the calculations in Step 3 to determine your deduction.

If you utilized your vehicle for work during the year, you simply need to fill out page two of Form 2106. Beginning on the second page is Part II.

Your auto expenses are included in Section A of Part II on the second page. After that, finish either Section B or Section C. Your decision will be based on whether you want to use your actual vehicle expenses and deduct a portion of them or claim the standard mileage rate. In order to calculate the percentage, divide the total number of miles you traveled by the number of miles you drove for work.

Only if you own the car in question and want to deduct actual vehicle expenses rather than the usual mileage rate, fill out Section D.

The sum shown on line 10 of Form 2106 may be moved to line 12 of Schedule 1, "Additional Income and Adjustments to Income". The amount for your Schedule 1 income adjustments is then inputted on line 10 of the Form 1040.

For the 2021 tax year, which corresponds to the return you'll file in 2022, the usual mileage rate is $.56 per mile. Do both computations before making a choice since you might find that deducting a proportion of your real auto expenses offers a higher deduction.

How to File Electronically Form 2106 ?

Your Form 1040, which can be electronically filed simultaneously with your tax return, is accompanied by IRS Form 2106. The IRS provides a variety of free online options for e-filing tax returns. To avoid exposing oneself to legal action, you want Form 2106 to be as accurate as possible. You should speak with a tax expert for additional guidance. Use the IRS's website Where to File Addresses for Taxpayers and Tax Professionals Filing Form 1040 or Form 1040-SR.

Where to Mail Form 2106 ?

The address will vary depending on the state you reside in if you're mailing Form 2106 along with your tax return. On its website, the IRS gives information for each state, including the correct location.

Where to Get Form 2106 ?

Online access to Form 2106 is provided by the IRS. It can be completed online, downloaded, printed, and manually filled out. Ensure you have the form from the most recent tax year.

Why File Form 2106 ?

Your expenses that you paid for out of pocket will be covered by reimbursements. If your employer didn't reimburse you or only partially repaid you for qualified expenses, you should be paid back. If you utilized your own vehicle for business-related purposes, you may also be able to claim a deduction. Eligible automotive expenses include car insurance, maintenance, gas, and repairs. Other typical costs include:
  • Certification costs, education and licenses.
  • Tools and supplies necessary to complete work.
  • Union fees.

Have You Completed IRS Form 2106 Incorrectly ?

If you believe you may have made a mistake on your Form 2106, you may be subject to penalties and/or legal action from the IRS. For assistance with tax relief, speak with a tax services expert. If mistakes have been made, they will work with you to identify them and, if necessary, develop a relief strategy. They'll also serve as a liaison between you and the IRS to resolve any concerns as quickly as possible. Even while filling out your IRS Form 2106 can be tedious, it is not impossible. Never forget to complete each step line by line, check your totals twice, support each claim with documentation, and seek professional assistance when necessary.

Requirements for Filing Form 2106

The National Guard, performing artists, military reservists, fee-basis government employees, and individuals with disability-related expenses are all qualified to submit Form 2106. The prerequisites for each, nevertheless, are different.

1) Requirements for Performing Artists :

Only those performing artists who offer entertainment or artistic services and are employed by two or more parties are eligible to file Form 2106. Additionally, artists must have expenses that total more than 10% of their income, make a minimum of $200 per employer, and have an adjusted gross income of $16,000 or less. If you're married, you must submit Form 2106 along with a combined tax return. The only exception to this rule would be if you and your spouse separated during the year in question.

2) Requirements for Work-Related Expenses for Military Reservists, National Guard Members, Fee-Basis Government Employees, and People with Disabilities :

i) Military Reservists :
You need to be a member of the Coast Guard Reserve, Army Reserve, Navy Reserve, Marine Corps Reserve, Air Force Reserve, or Public Health Service Reserve Corps.

ii) Fee-Basis Government Officials : 
a person who works for a state or a political organisation within a state and is paid on a fee basis.

iii) Employees with disabilities who have incurred work-related expenses :
People with physical or mental impairments are eligible to file claims for workplace expenses related to the acquisition of medication or specialized tools.