Employee expenses are incredibly common among small businesses and large enterprise organizations alike.
In the overwhelming majority of cases, employee expenses are returned through an expense reimbursement process.
But not all expenses are necessarily eligible or legally required to be reimbursed, and only some are tax-deductible.
In this article, we’ll explore unreimbursed employee expenses. We’ll discuss what they are, which states still allow them, and how to claim them.
What are unreimbursed employee expenses?
Unreimbursed employee expenses are costs that an employee pays out of pocket in the course of their job, but that are not repaid by their employer, as is the standard case.
These expenses can include a wide range of work-related costs, and while they are tied directly to employment, the employee bears all of the financial responsibility, not the employer.
Common examples include:
- Travel costs for business meetings
- Uniforms and protective clothing
- Meals during work travel
- Tools and equipment required to perform job duties
- Continuing education, training, and certification fees
Understanding these expenses is critical for tax filing.
In the past, many employees were allowed to deduct reimbursed expenses on their federal tax returns, but tax law changes have since limited eligibility for such deductions. Knowing which categories of expenses qualify and how current rules apply helps employees avoid missed opportunities for tax savings.
Are unreimbursed employee expenses deductible?
Whether unreimbursed employee expenses can be deducted depends on current tax law and the employee’s filing situation.
Current tax laws limit the ability of most employees to claim these expenses.
Prior to 2018, employees could deduct unreimbursed job-related costs as itemized deductions if they exceeded 2% of adjusted gross income. In 2018, this changed with the Tax Cuts and Jobs Act (TCJA), which eliminated the ability of the majority of workers to write off unreimbursed job expenses through 2025.
Eligibility criteria for claiming deductions are now much narrower.
The majority of employees can no longer deduct unreimbursed expenses on their federal tax returns, though specific categories of workers are exempt. These include:
- Armed Forces reservists
- Qualified performing artists
- Fee-based state or local government officials
- Employees with impairment-related work expenses
Even for those who are still eligible, claiming unreimbursed expenses generally requires itemizing deductions instead of taking the standard deduction. Since the TCJA nearly doubled the standard deduction, far fewer taxpayers itemize, which means even fewer claim these expenses, despite being eligible.
Who qualifies for unreimbursed employee expenses?
Not all workers can claim deductions for unreimbursed employee expenses (in fact, most can’t).
Under current federal tax law, eligibility is limited to specific groups of employees whose work requires them to cover certain costs out of pocket.
Employees who may qualify include:
- Armed Forces reservists who travel more than 100 miles from home for duty
- Qualified performing artists whose income primarily comes from performance-based work and who meet income thresholds
- Fee-based state or local government officials who are compensated on a fee system rather than a salary
- Employees with impairment-related work expenses, such as equipment or services required to perform their job despite a disability
Employees who do not fall into one of these categories are unable to deduct such expenses at the federal level, even though these expenses may still exist (such as teachers buying supplies or nurses purchasing uniforms).
Independent contractors and self-employed workers, however, may fall under different rules. These works cannot claim unreimbursed employee expenses (since they aren’t employees), but they may be eligible to deduct similar costs as business expenses on Schedule C.
Which states still allow unreimbursed employee expenses?
While the majority of federal deductions for unreimbursed employee expenses have been suspended through 2025, there are several U.S. states that still permit taxpayers to deduct such costs on their state income tax returns.
These include:
- Alabama
- Arkansas
- California
- Hawaii
- Maryland
- Minnesota
- New York
- Pennsylvania
How to claim unreimbursed employee expenses
Employees who qualify under federal rules or who live in states that still allow unreimbursed employee expense deductions must follow careful record-keeping and accurate filing processes.
Here’s an overview of the process for documenting unreimbursed employee expenses:
- Track expenses as they occur. Keep hold of all receipts, invoices, and mileage logs for every work-related expense.
- Record the business purpose. Note down why the expense was necessary for your job.
- Organize costs by category. Group expenses into travel, meals, licensing, uniforms, or other relevant categories to support itemization and simplify reporting.
- Maintain supporting records. If you receive partial reimbursement from your employer, keep documentation that shows the unreimbursed portion.
Filing requirements and necessary forms
At the federal level, eligible employees (reservists and performing artists, for example) generally report expenses on Form 2106, Employee Business Expenses, which then flows to Schedule 1 of Form 1040.
If your state allows deductions, you’ll need to use the state’s specific form. For instance, Pennsylvania requires the PA Schedule UE.
Always check your state’s Department of Revenue website for instructions.
Note that, in many cases, claiming unreimbursed employee expenses requires itemizing deductions rather than taking the standard deduction.
Tips for maximizing deductions
Follow these best practices to maximize your ability to deduct unreimbursed employee expenses and reduce your total tax liability:
- Only include expenses directly related to your job that are ordinary and necessary
- Separate personal and business costs. Mixed-use items (like internet or phone service) should be prorated for work use
- Keep a dedicated folder or digital record system to avoid losing receipts
- Review your eligibility each year, as tax laws can change and state rules vary
Changes in rules over the years and their implications
Pre-2018, most employees could deduct unreimbursed expenses, provided that they exceeded 2% of their adjusted gross income.
The Tax Cuts and Jobs Act, effective from 2018 through 2015, suspended these deductions at the federal level, drastically reducing eligibility.
Unless the act is extended or altered, the suspension is set to expire after 2025, potentially restoring broader deduction opportunities to their pre-2018 state.
Manage employee expenses with BILL
Unreimbursed employee expenses are common, but reimbursable expenses are far more prevalent, meaning employers of all sizes need to be aware of the implications of both and their treatment from both an operational and a tax perspective.
BILL Spend & Expense helps employers stay on top of all aspects of employee spending, from tax management through to reimbursement procedures, with powerful, integrated features like:
- Controllable employee spending cards
- Real-time expense reporting
- Reimbursement management
- Access to a business line of credit
