IRS Form 2106 (Employee Business Expenses) and Instructions (2020)
The IRS has released the 2020 version of Form 2106, used to determine and claim employee business expense deductions. The form and its instructions are substantially similar to the 2019 versions, but they have been revised to take into account changes to the standard mileage rate, depreciation limits on vehicles, and updates to forms and schedules referenced in Form 2106. (As a reminder, for taxable years beginning before 2026, Form 2106 may only be used by Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with disabilities who have impairment-related work expense (see our Checkpoint article).) Here are highlights:
Standard Mileage Rates. The new form and instructions update the standard mileage rate (see our Checkpoint article). For 2020, the business standard mileage rate is 57.5 cents per mile (a half-cent decrease from the 2019 rate).
Depreciation Limits on Vehicles. The instructions update the depreciation limits and inclusion amount thresholds for 2020, and note that the additional first-year limit on depreciation for vehicles acquired before September 28, 2017, is not allowed for vehicles placed in service after 2019. The instructions also note that due to changes in the Code § 1031 rules for like-kind exchanges, the special depreciation rules for vehicle trade-ins no longer apply.
Reporting Changes. References to Form 1040-NR have been changed to reflect the redesign of that form, which has been rearranged and renumbered to make it more like Forms 1040 and 1040-SR and now requires the use of Form 1040 schedules for some information previously reported directly on Form 1040-NR. Also, a reference to Form 1040-SR in connection with Schedule 1 has been dropped because the formal name of that schedule now refers only to Form 1040.
EBIA Comment: The suspension of miscellaneous itemized deductions, which took effect in 2018, has no direct effect on an employer’s ability to pay or reimburse employee business expenses using the working condition fringe benefit rules or the accountable plan rules. Nor does it affect an employer’s ability to take a deduction for its expenses, because the limit on miscellaneous itemized deductions applies to individuals, not employers. But the suspension continues to take its toll on employees who have incurred unreimbursable business expenses that are no longer deductible. For more information, see EBIA’s Fringe Benefits manual at Sections II.E (“Employee Business Expense Reimbursements”), IV (“Company Cars and Related Benefits”), and XXI (“Travel Expense Reimbursements”).
Contributing Editors: EBIA Staff.