Form 2106 for Employee Business Expenses is used to claim unreimbursed expenses related to your work. The recent Uber lawsuit in California is challenging Uber’s classification of its drivers as independent contractors vs. employees. Should the courts decide that drivers are in fact employees in California, this form could see added usage.
PLEASE NOTE: This post refers to tax years prior to 2018. Starting in 2018, Miscellaneous Itemized Deduction, including Employee Business Expenses, are no longer an itemized deduction.
Form 2106 is used for employees. You are able to deduct job-related expenses if they are “ordinary” and “necessary” for your job. An ordinary expense is one that is common and accepted in your field of trade, business, or profession. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be required to be considered necessary.
Should Uber be forced to classify their workers in California as employees, the employees would no longer claim their income and expenses on Schedule C. Instead, their income would now be reported as wages on a Form W-2. Any expenses that you incur related to driving for Uber, and that are not reimbursed by Uber, would be reported on Form 2106. The rules are the same for deducting your mileage, either by using the standard mileage rate or actual expenses for the year. If you get reimbursed at a standard mileage rate that is lower than the IRS approved amount, you can include the difference as an expense on Form 2106.
Your total expenses from Form 2106 are considered miscellaneous itemized deductions. This means they are deducted on Schedule A (with limited exceptions) and are subject to a 2% of Adjusted Gross Income (AGI) floor. Only the employee business expenses, along with other miscellaneous itemized deductions, that are greater than 2% of your AGI will be deducted.
As of the date of the publication, we are still awaiting a final ruling on this case. The items discussed here are just the beginning of the implications for drivers should the ruling pass.