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Can you deduct unreimbursed employee expenses?
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Occasionally, your employees might dip into their own pockets to cover business-related expenses. They might pay for a meal with a client, book a hotel room for a business trip on their personal credit card, buy office supplies, or drive their own vehicle to a work conference.
If you have an expense reimbursement policy, employees simply submit expense reports to recoup those costs. But what happens to unreimbursed employee business expenses? This question is a common point of confusion for employees and employers alike.
This article explores unreimbursed business expenses, rules for deducting them, and tips for business owners and employees to streamline this aspect of business operations.
What are unreimbursed employee business expenses?
Unreimbursed employee business expenses are any out-of-pocket expenses employees incur while performing their job duties that their employer doesn't reimburse. They can include things like:
- Costs for transportation, lodging, meals, and incidental expenses during business trips
- Tools, equipment, and other materials needed for the job
- Fees for professional development courses, workshops, conferences, and certifications to maintain or improve job skills
- Dues for professional organizations related to the job
- Driving their personal vehicle or paying transportation expenses or parking fees to meet with a client or attend a work-related event
- Buying uniforms or other clothing required for work and not suitable for everyday wear
- Gifts for clients and other business contacts valued up to $25 per person
- Home office furnishings and equipment, if required for work
The expense also needs to be the kind of expense that would be deductible by the business under normal circumstances.
According to Internal Revenue Service (IRS) rules, deductible expenses are both ordinary and necessary. Ordinary expenses are common and accepted in the trade or industry. A necessary expense is helpful and appropriate for your trade or business.
Many companies give out company cards or have expense reimbursement policies in place to reimburse these expenses. If they don't, unreimbursed business expenses can put a financial strain on employees who have to bear these costs — especially for employees in roles that require frequent travel or continuous professional development — because they can't offset the cost with a tax deduction.
Can a W2 employee write off expenses?
Before 2018, workers could deduct unreimbursed employee business expenses as miscellaneous itemized deductions on their tax returns.
However, the Tax Cuts and Jobs Act (TCJA) of 2017 changed this when it eliminated many miscellaneous itemized deductions. That means employees can't deduct unreimbursed job expenses at all (at least until many provisions of the TCJA sunset at the end of 2025).
But claiming those deductions wasn't really a great replacement for an expense reimbursement policy for several reasons:
- Employees had to itemize deductions to benefit from the tax write-off.
- These miscellaneous itemized deductions were subject to a 2% floor, meaning employees could only deduct the amount exceeding 2% of their adjusted gross income (AGI).
- A tax deduction isn't a dollar-for-dollar reduction in the employee's tax bill. Instead, such expenses reduce their taxable income. So, for example, a $1,000 tax deduction would save an employee in the 25% tax bracket about $250 in taxes.
Special rules for certain types of employees
A handful of workers can still deduct unreimbursed employee expenses.
Armed forces reservists
Members of the U.S. Army, Navy, Air Force, Marine Corps, Coast Guard, National Guard, and Reserve Corps can deduct their unreimbursed travel expenses.
Qualified performing artists
A qualified performing artist:
- Has at least two employers during the tax year
- Earns at least $200 from each employer
- Has $16,000 or less in adjusted gross income
- Performing arts earnings make up less than 10% of their total taxable income (if they have other sources of income)
Fee-basis local government officials
Salaried government employees can't deduct unreimbursed employee expenses. State or local government workers who receive fee-based compensation can deduct unreimbursed employee expenses.
Disabled employees with impairment-related work expenses
Workers with physical or mental disabilities can deduct the cost of impairment-related work expenses that are necessary for them to be able to work.
Teachers
Teachers and other K-12 educators and administrators who are in school at least 900 during the school year can also deduct up to $300 in job-related expenses.
All taxpayers who claim unreimbursed employee expenses on their tax returns need to keep records like receipts, canceled checks, or credit card statements to prove they paid for the business expenses and weren't reimbursed for them.
What is Form 2106 for unreimbursed employee expenses?
Most employees who qualify for one of the above categories complete Form 2106, Employee Business Expenses, to calculate their deduction.
Form 2106 is pretty simple as far as tax forms go. In Part I of the form, you enter your expenses and any partial reimbursements received from your employer. Then, net the two figures to come up with your total unreimbursed business expenses.
It's a little more complicated if you drive your personal vehicle for work. In that case, you need to complete Part II of Form 2106 and provide the total miles you drove during the year and the miles you drove for business. Then, you calculate your deduction using the standard mileage rate or actual vehicle expenses.
Educators don't have to file Form 2106 to claim the educator expense deduction. Instead, they report their deductions directly on Schedule 1 as above-the-line deductions.
A better way to manage business expenses
Letting employees pay out-of-pocket for business expenses might seem like a cost-cutting move for business owners. But it's not really ideal.
Employees who continually have to pay work-related costs out of their own compensation might feel undervalued or unsupported, leading to low employee engagement and potential turnover.
It makes more sense to reimburse employees for any job-related expenses they incur because you can claim deductions for those expenses on your business tax return. This also gives you a more accurate view of your business operations and profitability because your financial statements reflect all your business expenses — not just the ones paid for via your own funds.
Of course, implementing and managing an expense reimbursement program can be complex. Fortunately, Ramp’s expense management software offers a comprehensive solution to streamline this process, benefiting both you and your employees.
With Ramp, you don't have to worry about collecting expense reports and chasing down paper receipts. You can give employees company cards with pre-set spending limits and policies. When employees use their cards, Ramp prompts them to submit the receipt and matches it to the correct transaction.
The software cuts down on reconciliations by automatically checking every transaction and flagging non-compliant expenses so you can focus on higher-level approvals. Ramp can also integrate seamlessly with your accounting software or enterprise risk management (ERP) system to automatically code and categorize expense transactions. This automation reduces your administrative burden and ensures you always have up-to-date, accurate records.
Capture every deductible business expense with Ramp
Reimbursing employee business expenses doesn't have to be stressful or time-consuming. Our expense management software can help you keep employees happy and productive without the hassle of paper expense reports.
We can even provide analytics to give you insight into your spending, allowing you to identify trends and find ways to optimize business expenses.
Interested in learning more about how Ramp can help you improve employee satisfaction and run your business better? Request a demo or try Ramp for free.
FAQs
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- Higher credit limit than traditional business credit cards
- Spend management tools
- Give an unlimited number of physical and virtual cards to employees
- Spending controls and limits for employees
- Average savings of 5% from rewards and expense-reducing features
- More than $350,000 in offers from Ramp’s partners
- No annual fees, foreign transaction fees, or card replacement fees
- No credit check or personal guarantee is required
- No interest accumulation on your balance
- Seamless integration with numerous accounting software
- You must pay back the balance in full at the end of each month
- No elevated cashback rewards for specific categories
- You need $50,000 in your business bank account to qualify
- Cashback rewards
- Issue an unlimited number of employee cards
- Access to over $350,000 in offers from multiple partners
- Automated expense management software
- Track vendors and receive pricing insights from one dashboard
- Automated accounts payable
- Zero fees or interest
- No interest or fees
- Cashback rewards
- No personal guarantee
- Balances do not carry over, so you must pay them by the end of each month
- Your business must be incorporated to qualify for a card
- You need at least $50,000 in a business bank account to qualify
- Average net savings of 5% due to cost-reducing features
- Unlimited physical and virtual employee cards
- Access to $350,000 in deals from various partners
- Automated expense management software
- View vendor information and pricing on a single dashboard
- Automate accounts payable
- No fees or interest
- Cashback rewards with flexible redemption options
- Built-in expense management software
- No credit check or personal guarantee required
- Must be a registered business to qualify
- Must have most of your business spend in the US
- Get cashback on purchases
- Provide unlimited physical and virtual employee card
- Access more than $350,000 in deals from various partner
- Use automated software for expense management
- View vendor information and pricing on a single dashboard
- Automate accounts payable
- No fees or interest
- Cashback rewards on purchases
- Built-in expense management software
- No personal guarantee or credit check required
- Must be a registered business to qualify
- Must have most of your business spend in the US
- The Ramp Card is ideal for incorporated businesses
- Comes with automated expense management tools
- Provides 5% net savings on average
- Features AI-powered tools for detailed spending insights and cost-cutting recommendations
- Integrates seamlessly with accounting software to aid financial tracking and reporting
- No annual fees, foreign transaction fees, or card replacement fees
- Best for businesses aiming to streamline financial operations and enhance savings
- Offers 5% net savings on average through expense-cutting features
- No personal guarantee or credit check required for eligibility
- Automated expense management features like spending limits and receipt-matching
- Integration with accounting platforms including NetSuite, Quickbooks, and Xero
- Offers AI-powered cost-saving insights
- Unlimited physical and virtual employee cards
- Not available to sole proprietors or unregistered small businesses
- Requires $50,000 in a business bank account to qualify
Card Details
The Ramp Card is an innovative corporate card, particularly suited for LLCs, that combines automated expense management features with cashback rewards. It offers detailed spending insights with AI-powered recommendations for cutting costs, and integrates seamlessly with accounting software to simplify financial tracking and reporting. Cards come with no annual fees, foreign transaction fees, or card replacement fees. Ramp is an excellent choice for businesses that want to streamline their financial operations while saving money.
Pros
- Cashback rewards
- No personal guarantee or credit check required for eligibility
- Automated expense management features like spending limits and receipt-matching
- Integration with accounting platforms including NetSuite, Quickbooks, and Xero
- Offers AI-powered cost-saving insights
- Unlimited physical and virtual employee cards
Cons
- Primarily focused on cost-cutting, which might not suit all business needs
- Geared mainly towards U.S. businesses, which may limit its appeal for international transactions
Ramp’s charge card program comes with the additional perk of tools designed to help your business track and reduce its spending.
- No personal guarantee
- No annual fee
- Valuable cash back
- Additional tools to track spending
- Unlimited physical and virtual employee cards with custom limits
- Not available to sole proprietors
- Must have $50,000 in liquid assets
- Unlimited free virtual and physical employee cards
- Cashback rewards on purchases
- Customizable spending limits for employees
- Real-time transaction visibility
- Connects with accounting systems like QuickBooks and NetSuite
- Automates bill payments and invoice processing
- Provides a comprehensive audit trail and expert support for negotiations
- Unlimited virtual cards
- Real-time expense tracking
- Integration with accounting software
- Automated bill payments and invoice processing
- Requires full balance payments monthly
- Limited to businesses with most of their operations in the U.S.
- Corporate card and spend management platform
- Free employee cards with custom spending limits
- Cashback rewards on all purchases with no fees
- Built-in fraud protection ensures that your organization's finances are always secure
- Offers an average savings of 5% by identifying cost-saving opportunities
- No annual fees or interest
- Custom spend and vendor controls
- High credit limits
- Automatic receipt matching and expense categorization
- Not available to sole proprietors
- As a corporate charge card, balance can't be carried monthly
- Must have $50,000 in a business bank account to qualify
- Corporate card and spend management platform
- Unlimited employee cards with custom spending limits
- Cashback rewards on purchases
- Offers an average savings of 5% by identifying cost-saving opportunities
- Assists with software price negiotations
- No annual fees or interest
- Custom spend and vendor controls
- High credit limits
- Automatic receipt matching and expense categorization
- Not available to sole proprietors
- As a corporate charge card, balance can't be carried monthly
- Must have $50,000 in a business bank account to qualify
- Corporate card and spend management platform
- Cashback rewards on purchases
- Unlimited employee cards with custom spending limits
- Accounts payable software
- Uses business revenue to determine eligibility and credit limit
- No annual fees or interest
- Custom spend and vendor controls
- High credit limits
- Automatic receipt matching and expense categorization
- Only available to corporations, LLCs, and LPs
- As a charge card, balance can't be carried monthly
- Must have $50,000 in a business bank account to qualify
- Corporate card and spend management platform
- Cashback rewards on purchases
- Unlimited employee cards with custom spending limits
- Automated receipt matching
- Accounts payable software
- Must have $50,000 in a business bank account to qualify
- Balance must be paid in full each month
- Integrates with accounting platforms like NetSuite, Quickbooks, and Xero
- No credit check or personal guarantee required
- No annual fee or foreign transaction fees
- Must be a corporation, LLC, or LP to qualify
- Must have most of your operations and business spending in the US to qualify
- Corporate card with built-in spend management
- Cashback rewards on purchases
- Automated expense reports on fuel spending
- Advanced financial management features
- Unlimited free employee cards
- Requires a registered business and $50,000 in a U.S. business bank account to qualify
- Balance must be paid in full monthly
- Corporate card with customizable spending controls
- Cashback rewards on purchases
- Unlimited free physical and virtual employee cards
- Must have $50,000 in a business bank account to qualify
- Balance must be paid in full each month
- No personal guarantee or credit check required to qualify
- Advanced expense management automations and accounting integrations
- No annual fee or foreign transaction fees
- Must be a corporation, limited liability company, or LP to qualify
- Must have most of your operations and corporate spend in the US (though international purchases are supported with no foreign transaction fees)
- Corporate card with customizable spending controls
- Cashback rewards on purchases
- Unlimited free physical and virtual employee cards
- Must have $50,000 in a business bank account to qualify
- Balance must be paid in full each month
- Credit limits up to 30 times higher than traditional credit cards
- Sales-based underwriting makes for an easier qualification process
- Advanced expense management automations and accounting integrations
- No annual fee or foreign transaction fees
- Must be a corporation, limited liability company, or LP to qualify
- Must have most of your operations and corporate spend in the US (though international purchases are supported with no foreign transaction fees)
- Corporate card with customizable spending controls
- Cashback rewards on purchases
- Unlimited free physical and virtual employee cards
- Must have $50,000 in a business bank account to qualify
- Balance must be paid in full each month
- No credit check or personal guarantee required for eligibility
- Advanced expense management automations and accounting integrations
- No annual fee or foreign transaction fees
- Must be a corporation, limited liability company, or LP to qualify
- Must have most of your operations and corporate spend in the US (though international purchases are supported with no foreign transaction fees)
- Corporate card with customizable spending controls
- Cashback rewards on purchases
- Unlimited free physical and virtual employee cards
- Must have $50,000 in a business bank account to qualify
- Balance must be paid in full each month
- Advanced expense management automations and accounting integrations
- No personal guarantee or credit check required for eligibility
- No annual fee or foreign transaction fees
- Must be a corporation, limited liability company, or LP to qualify
- Must have most of your operations and corporate spend in the US (though international purchases are supported with no foreign transaction fees)
- Corporate card with customizable spending controls
- Cashback rewards on purchases
- Unlimited free physical and virtual employee cards
- Must have $50,000 in a business bank account to qualify
- Balance must be paid in full each month
- Advanced expense management automations and accounting integrations
- No personal guarantee or credit check required for eligibility
- No annual fee or foreign transaction fees
- Must be a corporation, limited liability company, or LP to qualify
- Must have most of your operations and corporate spend in the US (though international purchases are supported with no foreign transaction fees)
The Ramp Corporate Card is ideal for startups without a credit history. You just need an EIN number and $50,000 in a business bank account to qualify, and there's no credit check or personal guarantee required. Ramp's corporate card offers cashback on purchases and built-in expense management software to streamline your business finances.
Some of its features include receipt matching, subscription management, and AI-powered spending insights. Ramp is an excellent choice for startups that are aiming to earn rewards on business purchases while managing expenses.
- Ramp Corporate Card includes built-in spend management and travel-specific features
- Ability to set and enforce your company's travel spending policy on employee cards
- Features a travel dashboard displaying complete trip itineraries and flight information for each employee
- Offers cashback on purchases, including those made through travel booking platforms
- Provides AI-powered finance automation and insights
- Real-time expense reporting, customizable spending controls, and card templates for efficient financial management
- Seamless integration with over 100 applications, including travel management platforms
- No annual, application, or late payment fees
- Universal cashback reward applicable to all types of travel expenses
- Advanced financial management features suitable for tracking travel spending
- Compatibility with 100+ applications for streamlined travel expense management
- Requires a registered business and $50,000 in a U.S. business bank account to qualify
- Balance must be paid in full monthly
The Ramp Card is an innovative corporate card, particularly suited for LLCs, that combines automated expense management features with cashback rewards on purchases. It offers detailed spending insights with AI-powered recommendations for cutting costs, and integrates seamlessly with accounting software to simplify financial tracking and reporting. Cards come with no annual fees, foreign transaction fees, or card replacement fees. Ramp is an excellent choice for businesses that want to streamline their financial operations while saving money.
- Cashback rewards on purchases
- No personal guarantee or credit check required for eligibility
- Automated expense management features like spending limits and receipt-matching
- Integration with accounting platforms including NetSuite, Quickbooks, and Xero
- Offers AI-powered cost-saving insights
- Unlimited physical and virtual employee cards
- Primarily focused on cost-cutting, which might not suit all business needs
- Geared mainly towards U.S. businesses, which may limit its appeal for international transactions
- Corporate card particularly suited for LLCs
- Combines automated expense management features with cashback rewards on purchases
- Offers detailed spending insights with AI-powered recommendations for cutting costs
- Integrates seamlessly with accounting software to simplify financial tracking and reporting
- No annual fees, foreign transaction fees, or card replacement fees
- Excellent choice for businesses that want to streamline their financial operations while saving money
- Cashback rewards on purchases
- No personal guarantee or credit check required for eligibility
- Automated expense management features like spending limits and receipt-matching
- Integration with accounting platforms including NetSuite, Quickbooks, and Xero
- Offers AI-powered cost-saving insights
- Unlimited physical and virtual employee cards
- Primarily focused on cost-cutting, which might not suit all business needs
- Geared mainly towards U.S. businesses, which may limit its appeal for international transactions
Card Details
The Ramp Card is an innovative corporate card, particularly suited for LLCs, that combines automated expense management features with cashback rewards. It offers detailed spending insights with AI-powered recommendations for cutting costs, and integrates seamlessly with accounting software to simplify financial tracking and reporting. Cards come with no annual fees, foreign transaction fees, or card replacement fees. Ramp is an excellent choice for businesses that want to streamline their financial operations while saving money.
Pros
- Cashback rewards
- No personal guarantee or credit check required for eligibility
- Automated expense management features like spending limits and receipt-matching
- Integration with accounting platforms including NetSuite, Quickbooks, and Xero
- Offers AI-powered cost-saving insights
- Unlimited physical and virtual employee cards
Cons
- Primarily focused on cost-cutting, which might not suit all business needs
- Geared mainly towards U.S. businesses, which may limit its appeal for international transactions
- No annual fee
- Earn a $250 statement credit after spending $5,000 within the first three months of card membership
- Introductory rate of 0% APR for the first 12 months
- 2% cashback for the first $50,000 in purchases each year. Then, unlimited 1% cashback
- Expanding Buying Power lets you exceed your credit limit while still receiving rewards
- 3% balance transfer fee
- No overlimit fees
- 0% intro APR for the first 12 months
- Access to more capital
- No annual fees
- You only get 2% cashback for the first $50,000 before going down to unlimited 1% cashback
- No elevated cashback rewards for specific categories
- $39 penalty fee for late payments and returned payments
