Benefit

If you are an educator, for 2022 you can deduct up to $300 of what you spend out‐of‐pocket for classroom expenses and professional development courses related to curriculum as an adjustment to gross income; you do not have to itemize deductions to claim this benefit.

Conditions

You must be an educator in grades K–12. This includes not only teachers, but also principals, guidance counselors, and aides. The Tax Court allowed a high school coach to deduct his costs for sports over IRS objections that only classroom expenses counted; the track was his classroom.

You must work at least 900 hours a school year in a school that provides elementary or secondary education.

You must pay qualified expenses. This includes:

• Supplies, books, computer equipment, and other materials used in the classroom (including health and physical education courses).
• Professional development expenses, which are courses related to the curriculum that the educator teaches.
• Personal protective equipment (PPE) and other materials and supplies designed to stem the spread of COVID-19. These include:
  • Face masks
  • Disinfectant for use against COVID-19
  • Hand soap
  • Hand sanitizer
  • Disposable gloves
  • Tape
  • Paint or chalk used to guide social distancing
  • Physical barriers (e.g., clear plexiglass)
  • Air purifiers
  • Other items recommended by the Centers for Disease Control and Prevention (CDC) to be used for the prevention of the spread of COVID-19

Planning Tip

Keep receipts to support any claimed deduction for classroom expenses.

Pitfall

If you homeschool your child, you cannot claim this deduction.

Where to Claim the Deduction

Enter the amount of your out‐of‐pocket expenses up to $300 on Schedule 1 of Form 1040 or 1040‐SR.

Benefit

If you receive certain prizes or awards other than cash, you can exclude the amount you receive from income. These include awards of tangible personal property, such as the proverbial gold watch, given as awards for length of service or safety achievements, and your employer is permitted to deduct the cost of those awards. However, other prizes and awards are fully taxable.

Conditions

Generally, your ability to exclude employment‐related prizes and awards depends on your employer's ability to deduct the payments. But you don't have to be the company's comptroller to determine this; the company will report to you the tax treatment of the award on your Form W‐2.

Just to give you some idea of the extent of what you can exclude, your employer's deduction depends on whether the award is part of a qualified award plan. If yes, then up to $1,600 may be given to the same employee during the year. If the award is not part of a qualified award plan, then the annual limit per employee is $400.

Planning Tip

If you receive a valuable prize or award that is not tax free, your employer will automatically withhold income taxes on the payment (at the flat rate of 22%). If this withholding is not enough to cover your estimated tax requirements, ask your employer to withhold an additional amount.

Pitfall

If you win a sales or other contest on the job and receive a prize, such as a vacation, you can decline the award to avoid taxation on the benefit. If you accept the prize, you are generally taxed on the value of the benefit.

Where to Claim the Benefit

Prizes and awards that are tax free need not be reported on your tax return.

Benefit

If you are a performing artist with income below a set amount, you can deduct your employment‐related expenses as an adjustment to gross income (AGI).

Conditions

You must meet all of the following 3 conditions to treat your job‐related expenses as an adjustment to gross income rather than as an itemized deduction:

1. You have 2 or more employers in the performing arts during the year with at least $200 of earnings from at least 2 of them.
2. Your expenses from acting or other services are more than 10% of your gross income from such work. For example, you spend $8,000 during the year on voice lessons and earn $22,000 doing voice‐overs and other jobs in the performing arts. Since $8,000 is more than 10% of $22,000, you meet this condition.
3. Your adjusted gross income from all sources (not just performing arts) is no more than $16,000. This fixed dollar amount has not been changed since 1986.

Planning Tip

As with any other type of expense, it is vital to keep good records of your job‐related outlays. Retain receipts for lessons you take. Use a diary or other record keeper to note travel expenses and other items.

Pitfall

Even $1 of adjusted gross income over the $16,000 limit means your expenses cannot be deducted. If you anticipate AGI of about this amount, weigh carefully the after‐tax cost of accepting work that puts you over the limit.

Where to Claim the Benefit

You figure your deductible work‐related expenses on Form 2106. Your total amount is then entered on Schedule 1 of Form 1040 or 1040‐SR.

Benefit

If you are an employee of a state or local government and are paid in whole or in part on a fee basis, you can deduct the business expenses related to these services as an adjustment to gross income rather than as a miscellaneous itemized deduction.

Conditions

The only conditions for treating your business expenses as an adjustment to gross income are:

• You are an employee of a state or local government.
• You are paid in whole or in part on a fee basis.

Planning Tip

If you are a state or local government employee, ask to arrange partial compensation on a fee basis (for example, related to a specific government project) to create an above‐the‐line deduction for your job expenses.

Pitfall

There is no downside to treating these business expenses as an adjustment to gross income.

Where to Claim the Deduction

You figure your deductible work‐related expenses on Form 2106. Your total amount is then entered on Schedule 1 of Form 1040 or 1040‐SR.

Benefit

If you are required to repay supplemental unemployment benefits in order to qualify for trade readjustment allowances, you can claim a deduction for the repayment as an adjustment to gross income.

In some cases, you may even be eligible for a tax credit (instead of a deduction) for your repayments.

Conditions

To claim the deduction, you must be required to repay supplemental unemployment benefits that you included in income in a prior year. The deduction is designed to wipe the slate clean; you already paid tax on the benefits when you received them and now you are entitled to a deduction to reduce your income, effectively backing out the benefits.

To claim a credit, your repayment must exceed $3,000. Then figure your credit by recomputing the tax you would have paid had you not received the repaid amount in the initial year, and compare the tax with what you actually paid.

Planning Tip

If you repaid supplemental unemployment benefits in the same year in which they were received, you do not have to do anything; the benefits were never reported as income, so there is no offsetting deduction necessary.

Pitfall

You cannot choose to file an amended return for the year in which the supplemental unemployment benefits were originally paid to subtract your later repayment. Your only choice in handling the repayment is to deduct it or, if eligible, claim a tax credit in the year of repayment.

Where to Claim the Benefit

If you are claiming the deduction, enter the amount of your repayment on Schedule A of Form 1040 or 1040‐SR (it is a miscellaneous itemized deduction that is not subject to the 2%‐of‐AGI floor).

If you opt to treat repayments exceeding $3,000 as a tax credit, enter the credit on Schedule 3 of Form 1040 or 1040‐SR. Write in “IRC 1341” on line 13d of Schedule 3 to indicate the type of credit you are claiming.

Benefit

If you receive your regular pay while serving on jury duty and turn over your jury duty pay to your employer, you may claim a deduction for this action as an adjustment to gross income. This deduction is intended to offset your having to include the jury duty pay in income. There are no dollar limits on this deduction.

Condition

You must be required by your employer to turn over jury duty pay as a condition of receiving your regular compensation.

Planning Tip

Ask your employer whether you can keep your jury duty pay and simply receive your ordinary compensation in excess of this amount so that you reduce your FICA taxes (and your employer saves a like amount in FICA taxes).

Pitfall

Don't overlook this deduction for jury duty pay, especially if you receive it early in the year. It's easy to forget about it since payments of less than $600 are not reported to you on an information return from the government.

Where to Claim the Deduction

If you are claiming a deduction for jury duty pay turned over to your employer, enter the amount on Schedule 1 of Form 1040 or 1040‐SR.

Benefit

If you suffer from a physical or mental impairment and you must incur special expenses to enable you to work, you can deduct these impairment‐related expenses as an itemized deduction. This miscellaneous itemized deduction is not subject to the 2%‐of‐AGI floor, so it remains deductible in 2018 through 2025 even though other job‐related expenses subject to the 2%‐of‐AGI floor are not.

There is no dollar limit on this deduction. The deduction may be claimed without regard to the amount of your income.

Conditions

To be eligible for the deduction, you must meet both of the following conditions:

1. You have a physical or mental disability that results in a functional limitation of employment that substantially limits one or more major life activities.
2. You must pay the expenses in order to work. For example, if you require an attendant at work so you can perform your job, your cost for these services is a qualified expense.

Planning Tip

You may be able to avoid paying some or all of your work‐related expenses due to your impairment (no cost to you is better than a deductible one). Under the Americans with Disabilities Act (ADA), your employer must provide reasonable accommodations to enable you to perform your job duties. This may include special equipment or assistance. For more information about benefits to which you may be entitled by the ADA, visit www.usdoj.gov/crt/ada/adahom1.htm.

Pitfall

You cannot claim a double deduction for the same expense, so if you treat some impairment‐related costs as a job expense, you cannot also deduct them as a medical expense. For example, Braille books for your work are an impairment‐related job expense and also qualify as a deductible medical expense, but if you treat them as a job expense, you cannot also deduct them as a medical expense.

Where to Claim the Deduction

You must complete Form 2106, Employee Business Expenses to report your impairment‐related expenses along with other unreimbursed employee business expenses. The total amount is then entered as a miscellaneous itemized deduction not subject to the 2%‐of‐AGI floor on Schedule A of Form 1040 or 1040‐SR.

Benefit

If you are a member of the armed forces, including the National Guard and the reserves, you may be entitled to certain benefits because of your job status.

Condition

There are no specific conditions for claiming these benefits; you are entitled to them if you are a member of the armed forces.

Planning Tips

If you receive a Basic Allowance for Housing (BAH), you can still deduct your mortgage interest and real estate taxes on your home, even though you pay these expenses with your BAH.

Military personnel can treat tax‐free combat pay as earned income for purposes of making contributions to a traditional or Roth IRA.

Military personnel can also treat tax‐free combat pay as earned income for purposes of the earned income credit (see Chapter 1).

For purposes of the home sale exclusion for gain on the sale of a principal residence, military personnel have a 10‐year period (in place of a 5‐year period) in which to have owned and used the home as their main home (see Chapter 4).

Pitfall

Nearly half the states tax military retirement pay, so check with your state for details.

Where to Claim the Benefit

Benefits that are excludable are not to be reported on your return.

Benefit

You are not taxed on dependent care assistance—paid by your employer or you through a dependent care FSA—up to $5,000 ($2,500 for a married person filing separately) in 2022. Even if both spouses work for an employer offering a dependent care plan, the same dollar limit applies to the couple (i.e., $5,000 per couple).

Conditions

Employee salary reduction contributions made on a pre‐tax basis and reimbursements of expenses tax free or employer‐paid reimbursements have the following conditions:

1. There must be a plan set up by an employer for this purpose.
2. You must have a dependent under age 13 (or spouse or other dependent incapable of self‐care).
3. Any reimbursements must be for qualified dependent care expenses. These are the same benefits applicable to the dependent care credit (Chapter 1).
4. No reimbursements may be made for services provided by a child who is under age 19 at the end of the year or any other person who is your dependent.

Planning Tip

If you have 2 or more children, you can use the dependent care FSA to cover costs up to $5,000 and then claim the dependent care credit for additional expenses up to $1,000 (total expenses of $6,000 applicable to having 2 or more children).

Pitfall

You must reconcile any dependent care FSA with the dependent care credit (Chapter 1). In effect, you cannot take the credit to the extent you use the dependent care FSA.

Where to Claim the Benefit

Because this is a tax‐free opportunity, you do not report the employer payment or the salary amount contributed to the FSA. You can see this amount reflected on Form W‐2. For example, the amount for dependent care appears in box 10.

Benefit

If your employer pays for certain benefits, you may be able to exclude from your income some or all of these items. In many cases, however, tax‐free treatment does not apply if you are an employee of an S corporation in which you own more than 2% of the stock.

There are various limitations and conditions for different fringe benefits, many of which are discussed in other chapters in this book (see Table 13.1).

You may be unaware of certain fringe benefits because you do not have to sign up for them as you would for, say, health coverage or a retirement plan, and they are not reported on your annual Form W‐2. These fringe benefits include:

De minimis (minimal) fringe benefits. These are items so modest that accounting for them would be an administrative burden on your employer. For example:

• Birthday cakes
• Doughnuts, coffee, and soda
• Flowers or fruit for special occasions
• Occasional lunch or dinner money
• Photocopying
• Postage on personal items once in a while
• Use of employer's car if not more than once a month

Caution: Some companies have a policy against personal use of company property (e.g., photocopying) and such use can be considered a theft, so ask about your employer's policy on this matter.

Employee discounts. Typically, these are limited to 25% to 30% of the cost of goods such as store merchandise (usually 20% of the cost of services such as dry cleaning).

No‐additional‐cost services. These are items for which your employer does not incur any additional cost when you use them. For example:

• Flights for airline employees and their families on a standby basis
• Hotel rooms for hotel workers when there is a vacancy

Moving expenses. Reimbursements for moving expenses incurred after 2017 are not tax free (unless you're in the military and meet certain conditions).

Working condition fringe benefits. These include expenses that would be deductible as an unreimbursed employee business expense on your return if you, rather than your employer, had paid for them and if the deduction for miscellaneous itemized deductions subject to the 2%‐of‐AGI floor had not been suspended for 2018 through 2025. For example:

• Clothing and uniforms to wear on the job
• Dues to professional or trade associations
• Subscriptions to work‐related publications
• Travel and meals
• Work‐related continuing education courses

Transportation fringe benefit. This includes free parking, transit passes, and vanpooling of $280 per month in 2022. You can receive all transportation benefits each month. But the $20 per month in effect before 2018 for bicycle commuting does not apply in 2022.

Conditions

Different fringe benefits have different conditions and limitations. Table 13.1 contains a survey of various fringe benefits that are excludable, including any other limitations that may apply, and references, where appropriate, to the chapter in which you will find an additional explanation.

Planning Tips

Congress may increase the types of tax‐free benefits that employers can provide to workers, so check with your employer for benefits for which you may be eligible.

If a fringe benefit is tax free, it may also be exempt from Social Security and Medicare (FICA) taxes. Table 13.2 shows which benefits are exempt from Social Security and Medicare taxes.

Pitfalls

Employees in an S corporation who own more than 2% of the stock cannot exclude the following types of fringe benefits from income:

• Accident and health benefits.
• Achievement awards.
• Adoption assistance.
• Lodging on the business premises.
• Meals furnished for the employer's convenience.
• Transportation benefits (free parking and transit passes). However, transit passes up to $21 per month can be excluded if the value of the passes is not more than this amount (if more, then all of the benefit is taxable; you cannot exclude the $21 per month).

Certain benefits payable to highly compensated employees (generally executives and other highly paid workers, even those who are not S corporation shareholders) are not excludable. These benefits include:

• Self‐insured medical reimbursement plans
• Dependent care assistance if the program favors these employees
• Employee discounts
• No‐additional‐cost services

Where to Claim the Benefit

Tax‐free fringe benefits are not reported on your return. Many fringe benefits are listed on your Form W‐2, with any necessary reporting requirements included in the instructions to the form.

Benefit

If you live and work abroad, you are not taxed on up to $112,000 of foreign earned income. If you are married and both you and your spouse have foreign income, you may each be eligible for an exclusion. If your foreign earned income is more than $112,000, you are taxable only on amounts in excess of $112,000.

This exclusion is not automatic; you must elect it.

Conditions

To qualify for the foreign earned income exclusion, you must meet 3 conditions:

1. Your tax home is in a foreign country.
2. You meet either a foreign residence test (you live abroad for an uninterrupted period that includes one full year) or a physical presence test (you live abroad for 330 days during a 12‐month period). This eligibility requirement is waived for certain countries. For example, in 2021, the eligibility requirement was waived for Iraq, Burma, Chad, Afghanistan, and Ethiopia. Whether these or other countries will be listed by the IRS for 2022 remains to be seen; check the Supplement for any update.
3. You do not work for the U.S. government or a government agency.

You can apply the exclusion only to foreign earned income, not to other types of foreign income.

Planning Tips

What happens if you haven't met the foreign residence or physical presence test by the time your return is due? You cannot claim the exclusion before you have met either test, but you have a choice: You can ask for a filing extension if you expect to meet either test within the extension period.

Alternatively, you can file your return to report the foreign earned income and then file an amended return to claim the exclusion once you satisfy either test.

Once you make the election to exclude foreign earned income, it remains in effect for subsequent years unless you revoke it. You revoke the election by attaching a statement to your return indicating revocation.

Weigh carefully whether you want to revoke the election to claim the foreign earned income exclusion. Following a revocation, you may not use the exclusion for 5 years unless the IRS grants you permission to do so. The IRS may grant permission under these circumstances:

• You return to the United States for a period of time.
• You move to a different foreign country that has different tax rates.
• You change employers.
• There is a change in the tax law of the foreign country in which you reside.

If you are eligible to exclude foreign earned income, you may also qualify to exclude housing. The basic limit on housing expenses in areas that are not designated as high‐cost areas in 2022 is $33,600 (30% of $112,000) ($92.05 per day). The maximum exclusion for areas where the basic limit applies is $15,680 (the basic housing expense minus the basic housing amount, which is $17,920 [16% of the foreign earned income exclusion of $112,000]).

Pitfalls

If you elect to exclude your foreign earned income, you may not deduct any expenses related to such income.

You cannot base a contribution to an IRA or a Roth IRA on excludable foreign earned income.

You cannot claim the foreign tax credit or a deduction for foreign taxes related to excludable foreign earned income. In fact, if you had claimed the foreign earned income exclusion in the past and claim a foreign tax credit this year, you have effectively revoked your election to claim the exclusion. You cannot claim the exclusion for at least 5 years unless the IRS grants you permission to claim the exclusion.

Under a “stacking rule,” excluded foreign income is taken into account in figuring the tax rate you pay on income that is taxable.

You cannot claim the foreign earned income exclusion for work in Antarctica, in international waters, or in international airspace.

You cannot claim the foreign earned income exclusion with respect to earnings from any country subject to U.S. government travel restrictions. Countries subject to travel restrictions may be found at www.state.gov/travel and in IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Where to Claim the Benefit

To elect the foreign earned income exclusion, file Form 2555, Foreign Earned Income, which you attach to Form 1040 or 1040‐SR.