Today’s super-mobile workforce means that you may have clients who are splitting their time between multiple work locations. In these situations, understanding the concept of a tax home will help clarify the treatment of travel expenses.
What is a Tax Home?
The IRS defines a tax home as the city or general area where someone’s main place of business or work is located. If your client travels away from their tax home for work purposes, their travel expenses may be deductible.
“May be deductible” has taken on new meaning since the Tax Cuts and Jobs Act was passed in late 2017. Under prior law, employees could deduct unreimbursed work expenses, including travel expenses, as a miscellaneous itemized deduction. However, from 2018 though 2025, that deduction has been suspended, except for Armed Forces reservists, qualified performing artists, and fee-basis state or local government officials.
The best bet for employees who no longer qualify to deduct their travel expenses is to set up an accountable plan with their employer. Reimbursed travel expenses under an accountable plan are not taxable to the employee, while reimbursements under a non-accountable plan are included in the employee’s wages.
However, self-employed individuals can still deduct expenses for travel away from their tax home as business expenses.
A tax home may or may not be the same place as the family home, or a place that your client returns to regularly. For clients who work in more than one place, their tax home is their main place of business or work. This is determined by considering the following factors:
- The total time spent in each place.
- The level of business or work activity in each place.
- The relative amount of income earned in each place.
Expenses for work-related travel away from someone’s tax home are deductible or can be reimbursed tax-free under an accountable plan. Travel expenses include transportation, meals, lodging, laundry and dry cleaning, and incidentals.
For example, Ryan is a self-employed consultant living in Denver. He spends one week of every month working onsite for a client in Salt Lake City. Ryan spends the remaining three weeks of the month working with clients in the Denver area. Ryan’s tax home is Denver, so his travel, lodging and meal expenses for his monthly trips to Salt Lake City are deductible.
Over time, Ryan’s client in Salt Lake City becomes a bigger part of his work. Eventually, Ryan is spending all of his working time in Salt Lake City and flying home to Denver on the weekends. Now, his tax home is Salt Lake City, and neither his living expenses in Salt Lake City nor his plane fare between Denver and Salt Lake City are deductible.
What About Temporary Work Assignments?
It’s not unusual for an employee to be sent to work in a different location. If that assignment is temporary and the employee maintains a home in the original location, the tax home is still the original location. Travel expenses will be deductible for a contractor. Employee reimbursements under an accountable plan will be tax-free.
But, if the assignment is permanent or indefinite, then the person’s tax home is the new location, so travel expenses are not deductible. Accountable plan reimbursements are now taxable to the employee.
The IRS defines “temporary” as a work assignment that’s expected to last a year or less. If a work assignment that started out as a temporary posting is extended to more than a year, then it becomes an indefinite assignment when the anticipated duration changes.
For example, Kimberly has been working for a company in Boston and is sent to Los Angeles for an eight-month project. Kimberly’s tax home is still Boston. Her employer reimburses her for her travel, lodging and meals under an accountable plan, and those reimbursements are tax-free.
However, seven months into the project, Kimberly’s employer decides to extend her posting in Los Angeles for another eight months, to a total of 15 months. At that point, Kimberly’s assignment becomes indefinite, so her tax home changes to Los Angeles. If her employer continues to reimburse her for living expenses, even if it’s done under an accountable plan, those reimbursements are now taxable.
This only scratches the surface of the tangled web that results when people live and work in multiple locations. Depending on the states involved, your clients may also have state tax issues. IRS Publication 463, Travel, Gift, and Car Expenses, is a good resource, so be sure to check it out if you have clients in this situation.
Editor’s note: This article was published on the Firm of the Future blog.