Travel Expenses: Are They Unreimbursed Employee Expenses?

Employees who travel for work often have to pay for expenses out of their own pockets, and they may be able to deduct these unreimbursed expenses from their taxable income. However, the rules surrounding this are complex and depend on the nature of the work, the duration of the trip, and the type of expenses incurred.

Travel expenses for conventions

For conventions within the North American area, the entire cost of transportation and lodging, plus 50% of meal expenses, is deductible. The North American area includes the United States, U.S. possessions, Canada, Mexico, Bermuda, Barbados, Costa Rica, Dominica, the Dominican Republic, Grenada, Guyana, Honduras, Jamaica, Saint Lucia, and Trinidad and Tobago.

For conventions outside the North American area, the meeting must be directly related to the taxpayer's trade or business, and it must be reasonable to hold the meeting outside the North American area. The amount of deduction allowed depends on the primary purpose of the trip and the time spent on non-business activities. If the entire time is devoted to business, all ordinary and necessary travel expenses are deductible. If the trip is primarily for vacation, with only a few hours spent on business, none of the travel expenses to and from the location are deductible. If personal activities take place during the business trip, expenses incurred in traveling to and from the business location must be allocated between business and non-business expenses. If the travel is for a week or less, or if less than 25% of the total time is spent on non-business activities, the travel deductions are treated the same as for travel within North America.

Some deductible travel expenses include:

• Travel by airplane, train, bus, or car between your home and your business destination.
• Fares for taxis or other transportation between the airport or train station and your hotel, or between the hotel and your work location.
• Shipping of baggage and sample or display material between your regular and temporary work locations.
• Using your car while at your business destination, including actual expenses or the standard mileage rate, as well as business-related tolls and parking fees.
• Lodging and non-entertainment-related meals.
• Dry cleaning and laundry.
• Business calls and communications while on your trip.
• Tips for services related to any of these expenses.
• Other similar ordinary and necessary expenses related to your business travel.

Travel expenses that are deductible

When it comes to travel expenses that are deductible, there are several factors and rules to consider. Firstly, you can only deduct travel expenses if you are travelling outside of your "tax home". Your tax home is generally the city or area where your main place of business or work is located, not necessarily where you live. To be eligible for claiming travel expenses, your trip must be longer than a typical work day, and you must need rest or sleep to meet the demands of your work while away.

If you meet these requirements, you can deduct various travel expenses, including transportation costs such as plane, train, bus, or car travel to and from your business destination. You can also deduct fares for taxis or other transportation between the airport/train station and your hotel, or between your hotel and your work or meeting location. If you need to ship baggage or display materials to a temporary work location, these costs are also deductible.

If you use your own car for business travel, you can deduct the actual expenses or choose the standard mileage rate, along with business-related tolls and parking fees. If you rent a car, only the portion used for business purposes is deductible.

Lodging and meals that are not for entertainment purposes are also deductible. You can generally deduct 50% of meal expenses, unless you use the standard meal allowance, which varies depending on your travel location.

Other deductible expenses include dry cleaning and laundry, business calls and communication, and tips for services related to these expenses. Remember to keep good records of your expenses, such as receipts and cancelled checks, to support your deductions.

Travel expenses that are non-deductible

To be tax-deductible, travel expenses must be incurred while conducting business-related activities. They must be "ordinary and necessary", and not deemed unreasonable, lavish, or extravagant. With that in mind, here are some examples of travel expenses that are non-deductible:

• Travel to and from your residence from your permanent place of work.
• Travel expenses at a work location if you expect to work there for more than a year, even if you end up working there for less than a year.
• Travel expenses covered by your employer, if you expect to be in a temporary location for more than a year, expect to be in a location for more than a year, or will be in a temporary location indefinitely.
• Travel expenses for workers with no fixed primary location, such as construction workers who constantly change work locations.
• Rental car costs for a vehicle that is larger or more luxurious than necessary, such as renting a Range Rover when a Toyota Camry would suffice.
• Meals and entertainment that do not have a clear business justification.
• Costs incurred while visiting family or friends during a business trip, such as driving from a hotel to visit them.
• Costs of lodging that is more luxurious than necessary, such as renting a suite when a standard room would suffice.
• Costs of transportation that is more luxurious than necessary, such as renting a sports car when a sedan would suffice.

Employee groups that can deduct unreimbursed expenses

The Tax Cuts and Jobs Act (TCJA) of 2017 suspended the deductions for most workers from 2018 to 2025. However, a handful of workers can still write off certain unreimbursed employee expenses. These include:

• Armed forces reservists: Members of a reserve component of the military can keep deducting unreimbursed expenses.
• Qualified performing artists: The performing artist needs to have at least two employers in a year, earn at least $200 per employer, and report $16,000 or less in adjusted gross income. Earnings made in other ways cannot exceed 10% of the person’s total earnings.
• Fee-basis state or local government officials: These are employees of a state government who are paid by fees, at least in part.
• Employees with impairment-related work expenses: Employees with physical or mental disabilities can deduct expenses they incur to be able to work, such as the cost of attendants and necessary equipment.
• Educators: Teachers, instructors, counselors, principals, and aides can deduct up to $250 in certain expenses incurred for teaching.

Employee expenses that are not travel-related

Travel expenses are the ordinary and necessary costs of travelling away from home for business, and they are generally paid for by employers. They are only deductible if they are incurred to conduct business-related activities. They do not include expenses that are deemed unreasonable, lavish, or extravagant, or expenditures for personal purposes.

Now, here are some examples of employee expenses that are not travel-related:

• Office Supplies: Employees may need to purchase stationery, ink, paper, or other supplies for their work. These expenses are typically reimbursed by the company.
• Professional Development: Costs associated with attending workshops, courses, or conferences for professional growth are often not covered by travel expenses.
• Work-Related Subscriptions: Employees may subscribe to industry-specific publications, software, or services required for their job and seek reimbursement.
• Company Events: Expenses incurred by employees for company events, such as team-building activities, holiday parties, or client entertainment, may not be covered by travel expenses.
• Uniforms and Work Clothing: In certain industries, employees may need to purchase specific clothing or uniforms, and these expenses are often not reimbursed.

Frequently asked questions