IRS Form 2106 (Employee Business Expenses) and Instructions (2016); IRS Form 2106-EZ (Unreimbursed Employee Business Expenses) (2016)
The IRS has released the 2016 version of Form 2106 (Employee Business Expenses). This form must be attached to the Form 1040s of employees claiming business expense deductions in three situations: (1) the expenses were for work-related vehicles, travel, transportation, meals, or entertainment; (2) the employee was reimbursed on a nontaxable basis for deductible work-related expenses (other than work-related moving expenses, which are reported on Form 3903); or (3) the employee is a reservist, qualified performing artist, government official compensated on a fee basis, or disabled individual who is subject to a special filing rule. Employees may use a simplified version—Form 2106-EZ (Unreimbursed Employee Business Expenses)—for claiming their business expense deductions if they use the standard mileage rate for any vehicle expenses and did not receive expense reimbursements from their employers other than reimbursements reported as taxable income.
The 2016 forms and instructions are substantially similar to the 2015 versions. The 2016 versions have been revised to reflect that the standard business mileage rate for 2016 is 54 cents per mile (down from 57.5 cents for 2015). The 2016 instructions for Form 2106 note that both the inflation-adjusted first-year depreciation deduction limits for most vehicles first placed in service in 2016 and the 2016 fair market value threshold for leased vehicles to which an inclusion amount may apply are unchanged from 2015. The first-year depreciation limits for trucks and vans, however, rose by $100 (see our Checkpoint article). The instructions for both forms have been revised to reflect that the standard meal allowance for all of 2016 is $51 per day for most small localities and higher in most major cities and other locations.
EBIA Comment: The accountable plan rules allow employees to avoid tax on business expense reimbursements if three principal requirements are met: the expenses have a business connection; they are adequately substantiated; and any excess reimbursements are returned. If accountable plan reimbursements do not fully cover an employee’s expenses, the employee may be eligible to take a deduction for the unreimbursed expenses, using Form 2106 to calculate the deduction, but only if the employee maintained adequate records to substantiate them. The instructions reference Publication 463 (Travel, Entertainment, Gift, and Car Expenses) as a source of further details. For more information, see EBIA’s Fringe Benefits manual at Sections II.E (“Employee Business Expense Reimbursements”), IV.B (“What Are the Tax Consequences of a Company Car?”), and IV.F (“Employer Reimbursements for Business Use of an Employee’s Car”).
Contributing Editors: EBIA Staff.