Form 2106: Employee Business Expenses & How to Claim

KEY TAKEAWAYS

• Form 2106 is used by certain employees to deduct necessary and ordinary expenses that relate to their jobs.
• A number of expenses can be claimed back by filing this form with the Internal Revenue Service (IRS). 

What Is Form 2106: Employee Business Expenses?

Form 2106: Employee Business Expenses is a tax form distributed by the Internal Revenue Service (IRS). This form is attached to your Form 1040. It is used by employees in order to deduct necessary and ordinary expenses that are related to their jobs. 

Ordinary expenses tend to be considered any expense that is common and accepted in a particular line of business. Necessary expenses are expenses that are helpful in the conducting of business.

What Is the Purpose of Form 2106?

The main purpose of Form 2106 is to allow employees to deduct necessary and ordinary expenses for their job. This form is submitted by employees to deduct actual and required business costs. 

A common and recognized expense in your line of work, business, or profession is one that qualifies as ordinary. A cost that benefits and is appropriate for your business is one that is necessary.

Who Can File Form 2106?

According to the IRS, the only taxpayers that can use Form 2106 are the following:

• Qualified performing artists
• Armed Forces reservists
• Employees with impairment-related work expenses
• Fee-basis local or state government officials
• Prior to 2018, any employee that had unreimbursed work expenses could use the form to claim those expenses. This would be claimed as a miscellaneous itemized deduction.Due to the suspension of miscellaneous itemized deductions subject to the 2% floor, employees who do not fit in any listed categories may not use Form 2106.

How to File Form 2106?

Form 2106 is made up of two parts.

Part one gathers all employee business expenses and reimbursements. From there, this part then calculates whether expenses were eligible for a tax deduction or not, as well as which ones are eligible. 

Part two deals with vehicle expenses that are more specific. The filer will have two choices. 

They can either use the standard mileage rate, which is multiplying the IRS mileage rate for the tax year by the number of related miles driven. The mileage rate factors in repair expenses, gasoline, plus any wear-and-tear on the average car. For 2022, it is set at $0.625 per mile, this is up from the $0.56 per mile in 2021. 

Or, the filer can use the second method which is to calculate actual expenses.

What Types of Expenses Can Be Deducted on Form 2106?

In part one of the form, you can deduct things such as:

• Vehicle expenses
• Parking
• Toll
• Transportation charges
• Other business expenses such as travel and lodging. 

The person filing the form may also include any reimbursements made by the employer.

In the second part of the form, you can deduct vehicle-related expenses:

• Oil
• Gasoline
• Repairs
• Insurance
• Registration
• Depreciation is an amount you can deduct to recover the cost of your vehicle over a certain number of years. 

You are not allowed to deduct any interest on car loans. There are also limits put in place on car valuations. Whether you used actual expenses or standard mileage, any expenses that are incurred in the process of commuting to and from work are not considered to be eligible business expenses.

Summary

Form 2106 allows certain employees to deduct expenses from their taxable income that are necessary or helpful for their jobs. In order to be eligible for this deduction, you must receive your wages directly from your employer who will issue a W-2 at the end of the year. An independent contractor or sole proprietor may not use Form 2106.

Written by Sandra Habiger, CPA

Sandra Habiger is a Chartered Professional Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors. She supports small businesses in growing to their first six figures and beyond. Alongside her accounting practice, Sandra is a Money and Life Coach for women in business.

Written by Sandra Habiger, CPA

Sandra Habiger is a Chartered Professional Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors. She supports small businesses in growing to their first six figures and beyond. Alongside her accounting practice, Sandra is a Money and Life Coach for women in business.