PA Publishes Sch. UE Tips for Taxpayers
PA Conducts Systemic Reviews of PA Sch. UE Expenses & Deductions
The PA Dept. of Revenue (DOR) has taken an aggressive approach against taxpayers who claim unreimbursed employee expense. Prove it or lose it. First the expenses must not be reimbursable. Second, the expenses must be actual, reasonable, necessary, ordinary, and directly related to the employee’s job.
It is not uncommon for the DOR to contact taxpayers to request an explanation or supporting information for any amounts reported on Sch. UE. Since taxpayers who claim such deductions should already have the supporting documentation when the return was filed, the DOR expects taxpayers to provide the requested information within a very short time period.
If a taxpayer received a reimbursement for any expenses where the reimbursement is based upon a per-diem or fixed dollar amount, the expense is not allowable and should not be included on Sch. UE. For example, if an employer reimburses an employee 40 cents per mile of business use when a personal auto is used, the difference between the federal mileage rate and the employer’s reimbursement rate is not allowed as a Sch. UE deduction. However, if the employer included its reimbursement in the taxpayer’s computation of PA wages, the amount of such inclusion is allowed as an UE expense.
The DOR has stated that supporting documentation must be submitted as a pdf attachment when the PA-40 is e-filed. If the e-file processor does not support pdf attachments, the DOR has provided a fax number, email address, and a mailing address to send the supporting documentation.
Supporting documentation includes a letter from the employer stating that:
- The employee is required to incur the expenses to perform the duties of the employee’s position;
- If there is any reimbursements by the employer;
- The method by which reimbursement is determined.
In lieu of the employer’s letter, the DOR will accept a copy of the employer’s employee expense reimbursement policy or a signed affidavit. PA DOR will soon provide templates that should be used.
The DOR does not allow commuting expenses (as defined by the DOR). Commuting expenses include commuting between home and work and parking expenses. Travel to a second job is considered commuting. If you are a tradesman, traveling between any job site not more than 35 miles from the closer of the union hall or the taxpayer’s home to the jobsite is considered commuting and is not deductible.
Cell phone charges for calls required by an employer are deductible. Costs for family plans, bundles, or for additional lines are not reimbursable expenses.
Dues and subscriptions for professionals are not deductible. Cable or internet costs are not deductible unless there are separate bills for a home office.
PA DOR recommends that taxpayers review its REV-637 form which lists unallowable business expenses for UE reporting.
For miscellaneous expenses claimed, the DOR is requesting breakdowns by the vendors showing the detailed expenses.
Spouses cannot claim their expenses on a combined Sch. UE. A separate UE is required for each spouse.
Question Taxpayers Need to Ask Themselves: It is obvious that the PA DOR is doing its best to limit taxpayers from claiming unreimbursed employee expenses. Since the 2018 Tax Act has effectively eliminated this type of deduction for federal income taxes, it is worth your time and effort to claim these expenses for a savings of 3.07%, increased tax preparation costs, and delays in the PA DOR processing your returns, especially if a refund is being claimed?
If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.