This section briefly describes how employees complete Forms 2106 and 2106-EZ. Table 5 explains what the employer reports on Form W-2 and what the employee reports on Form 2106. The instructions for the forms have more information on completing them.
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If you are self-employed, do not file Form 2106 or 2106-EZ. Report your expenses on Schedule C, C-EZ, or F (Form 1040). See the instructions for the form that you must file. |
Form 2106-EZ. You may be able to use the shorter Form 2106-EZ to claim your employee business expenses. You can use this form if you meet all 3 of the following conditions.
You are an employee deducting expenses attributable to your job.
You were not reimbursed by your employer for your expenses (amounts included in box 1 of your Form W-2 are not considered reimbursements).
If you are claiming car expenses, you are using the standard mileage rate.
Car expenses. If you used a car to perform your job as an employee, you may be able to deduct certain car expenses. These are generally figured in Part II of Form 2106, and then claimed on line 1, Column A, of Part I of Form 2106. Car expenses using the standard mileage rate can also be figured on Form 2106-EZ by completing Part II and line 1 of Part I.
Information on use of cars. If you claim any deduction for the business use of a car, you must answer certain questions and provide information about the use of the car. The information relates to the following items.
Mileage (total, business, commuting, and other personal mileage).
Percentage of business use.
Date placed in service.
Use of other vehicles.
After-work use.
Whether you have evidence to support the deduction.
Whether or not the evidence is written.
Employees must complete Section A, Part II, Form 2106, or Part II, Form 2106-EZ, to provide this information.
Standard mileage rate. If you claim a deduction based on the standard mileage rate instead of your actual expenses, you must complete Section B, Part II, Form 2106. The amount on line 22 (Section B) is carried to line 1, Part I, Form 2106. In addition, on line 2, Part I, Form 2106, you can deduct parking fees and tolls that apply to the business use of the car. If you file Form 2106-EZ, complete line 1, Part I, for the standard mileage rate and line 2 for parking fees and tolls. See Standard Mileage Rate in chapter 4 for information on using this rate.
Actual expenses. If you claim a deduction based on actual expenses, you cannot use Form 2106-EZ. You must complete Section C, Part II, Form 2106. In addition, unless you lease your car, you must complete Section D to show your depreciation deduction and any section 179 deduction you can claim.
If you are still using a car that is fully depreciated, continue to complete Section C. Since you have no depreciation deduction, enter zero on line 28. In this case, do not complete Section D.
Car rentals. If you claim car rental expenses on line 24a of Form 2106, you may have to reduce that expense by an inclusion amount as described in chapter 4. If so, you can show your car expenses and any inclusion amount as follows.
Compute the inclusion amount without taking into account your business use percentage for the tax year.
Report the inclusion amount from (1) on line 24b, Part II, Form 2106.
Report on line 24c the net amount of car rental expenses (total car rental expenses minus the inclusion amount computed in (1)).
The net amount of car rental expenses will be adjusted on line 27, Part II, of Form 2106, to reflect the percentage of business use for the tax year.
Transportation expenses. Show your transportation expenses that did not involve overnight travel on line 2, Column A, of Form 2106 or on line 2, Part I, of Form 2106-EZ. Also include on this line business expenses you have for parking fees and tolls. Do not include expenses of operating your car or expenses of commuting between your home and work.
Employee business expenses other than meals and entertainment. Show your other employee business expenses on lines 3 and 4, Column A, of Form 2106 or on lines 3 and 4 of Form 2106-EZ. Do not include expenses for meals and entertainment on those lines. Line 4 is for expenses such as gifts, educational expenses (tuition and books), office-in-the-home expenses, and trade and professional publications.
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If line 4 expenses are the only ones you are claiming, you received no reimbursements (or the reimbursements were all included in box 1 of your Form W-2), and the Special Rules do not apply to you, do not complete Form 2106 or 2106-EZ. Claim these amounts directly on line 20 of Schedule A (Form 1040). List the type and amount of each expense on the dotted lines and include the total on line 20. |
Meal and entertainment expenses. Show the full amount of your expenses for business-related meals and entertainment on line 5, Column B, of Form 2106. Include meals while away from your tax home overnight and other business meals and entertainment. Enter 50% of the line 8, Column B, meal and entertainment expenses on line 9, Column B, of Form 2106.
If you file Form 2106-EZ, enter the full amount of your meals and entertainment on the line to the left of line 5 and multiply the total by 50%. Enter the result on line 5.
Hours of service limits. If you are subject to the Department of Transportation's hours of service limits, use 65% instead of 50%.
Reimbursements. Enter on line 7 of Form 2106 (You cannot use Form 2106-EZ.) the amounts your employer (or third party) reimbursed you that were not reported to you in box 1 of your Form W-2. This includes any amount reported under code L in box 12 of Form W-2.
Allocating your reimbursement. If you were reimbursed under an accountable plan and want to deduct excess expenses that were not reimbursed, you may have to allocate your reimbursement. This is necessary when your employer pays your reimbursement in the following manner:
Pays you a single amount that covers meals and/or entertainment, as well as other business expenses, and
Does not clearly identify how much is for deductible meals and/or entertainment.
You must allocate that single payment so that you know how much to enter in Column A and Column B of line 7 of Form 2106.
Example. Rob's employer paid him an expense allowance of $5,000 this year under an accountable plan. The $5,000 payment consisted of $2,000 for airfare and $3,000 for entertainment and car expenses. The employer did not clearly show how much of the $3,000 was for the cost of deductible entertainment. Rob actually spent $6,500 during the year ($2,000 for airfare, 000 for entertainment, and $2,500 for car expenses).
Since the airfare allowance was clearly identified, Rob knows that $2,000 of the payment goes in Column A, line 7, of Form 2106. To allocate the remaining $3,000, Rob uses the worksheet from the instructions for Form 2106. His completed worksheet follows.
| 1. | Enter the total amount of reimbursements your employer gave you that were not reported to you in box 1 of Form W-2 | 3,000 |
| 2. | Enter the total amount of your expenses for the periods covered by this reimbursement | 4,500 |
| 3. | Of the amount on line 2, enter your total expense for meals and entertainment | 2,000 |
| 4. | Divide line 3 by line 2. Enter the result as a decimal (rounded to at least three places) | .444 |
| 5. | Multiply line 1 by line 4. Enter the result here and in Column B, line 7 | 1,332 |
| 6. | Subtract line 5 from line 1. Enter the result here and in Column A, line 7 | 1,668 |
On line 7 of Form 2106, Rob enters $3,668 ($2,000 airfare and $1,668 of the $3,000) in Column A and $1,332 (of the $3,000) in Column B.
After you complete the form. After you have completed your Form 2106 or 2106-EZ, follow the directions on that form to deduct your expenses on the appropriate line of your tax return. For most taxpayers, this is line 20 of Schedule A (Form 1040). However, if you are a government official paid on a fee basis, a performing artist, or a disabled employee with impairment-related work expenses, see Special Rules, later.
Limits on employee business expenses. Your employee business expenses may be subject to any of the three limits described next. They are figured in the following order on the specified form.
1. Limit on meals and entertainment. Certain meal and entertainment expenses are subject to a 50% limit. If you are an employee, you figure this limit on line 9 of Form 2106 or line 5 of Form 2106-EZ.
2. Limit on miscellaneous itemized deductions. If you are an employee, deduct your employee business expenses (as figured on Form 2106 or 2106-EZ) on line 20 of Schedule A (Form 1040). Most miscellaneous itemized deductions, including employee business expenses, are subject to a 2%-of- adjusted-gross-income limit. This limit is figured on line 25 of Schedule A (Form 1040).
3. Limit on total itemized deductions. If your adjusted gross income (line 35 of Form 1040) is more than $139,500 ($69,750 if you are married filing separately), the total of certain itemized deductions, including employee business expenses, may be limited. See your form instructions for information on how to figure this limit.
Information courtesy of the Internal Revenue Service.
