Recent posts have discussed the PA Dept. of Revenue’s (DOR) efforts to deny Sch. UE-1 expenses that employees are claiming against their W-2 wages. The PA DOR is requesting letters from the employee’s employer stating that the expenses claimed as non-reimbursable by the employee are in fact non-reimbursable per the employer’s expense reimbursement policy.
The DOR’s policy is no different than that of the IRS. The Richards case (T.C. Memo 2014-88, May 15, 2014) illustrated the rule that in order for an employee to deduct unreimbursed employee business expenses on Schedule A (subject to the 2% of AGI limitation), the expense must NOT be reimbursable by the employer. In the Richards case, the employee failed to claim reimbursement for her expenses in the course of her employment that she was entitled to claim under her employer’s expense reimbursement policy. The courts have consistently ruled that a taxpayer must not have the right to claim reimbursement from his or her employer to claim the tax deduction on Schedule A. In other words, the fact that the expenses were not reimbursed by the employer is not controlling. What is controlling is whether the employee can prove that (1) he or she is required to incur the expenses on behalf of the employer and (2) if the employee requested reimbursement and was denied by the employer or the employer’s reimbursement policy clearly states that such expenses are not reimbursable.
Thus when it comes to tax preparation and tax planning, the burden is upon the taxpayer to procure a copy of the employer’s expense reimbursement policy to support any unreimbursed employee expenses claimed on Schedule A. It may not be a bad idea to obtain a letter from the employer to support the required expenses to be incurred by the employee and that the employer’s policy is not to reimburse the employee for such expenses.
If you want to learn more about your personal or business tax situations, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA officeto discuss your situation. You can also schedule a consultation at Click Here.
