WFH tax deductions: Who qualifies and how much can you get?

Flat vector illustration of person at desk using computer for video call — (Image credit: Getty Images)

Working from home (commonly abbreviated as WFH) can offer a number of perks, from skipping the daily commute to wearing sweatpants all day long. But can the remote work setup also include tax deductions on your home office space? It depends.

The biggest WFH tax deduction is arguably the home office deduction, and according to CNBC, "most employees aren't eligible" for it — though "you may qualify as a contractor or with a side business." If you're among those earning 1099 income, here's a look at how you can claim a tax deduction, wherein you subtract certain expenses from your income to lower your tax bill.

Who is eligible for the home office deduction?

Whether you can claim a home office deduction depends on how you're employed. Traditional employees earning W-2 income generally are not eligible for the home office deduction, while those who are self-employed workers or contractors earning 1099 income may qualify. That said, per Kiplinger, "if you're an employee at a 'regular' job, but you also have your own side hustle, you can claim deductions for business expenses and the home office deduction for your own business — if you meet all the requirements."

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Eligibility also depends on whether or not your workspace meets IRS guidelines. As TaxAct explains, "for your office to be considered a home office in the eyes of the IRS, you must use your home office area regularly and exclusively for your self-employed business."

This doesn't necessarily mean you have to dedicate an entire room to your work though. "There doesn't have to be a wall that cordons it off — if you have an area that is designated as your home office and nothing else is done in that area, you have an exclusive area," Trish Evenstad, enrolled agent and president of Evenstad Tax and Financial Services Inc. in Westby, Wisconsin, told U.S. News & World Report.

How do you calculate your home office deduction?

You can calculate the home office deduction in one of two ways: the simplified option or the regular method. As CNBC said, "the simplified option uses a standard deduction of $5 per square foot of the portion of your home used for business, capped at 300 square feet, or $1,500." The regular method, on the other hand, "uses the percentage of your home used for business, including actual expenses, such as part of your mortgage interest, insurance, utilities, repairs and depreciation," per CNBC.

The regular method tends to be "more complicated," and you'll need to "have documentation to show proof of your deductions," according to CNBC. However, notes CNBC, the regular method also could provide a "bigger tax break" since the simplified option can't exceed $1,500. You might calculate your deduction using each method to determine which one is better for you.

Further, if you didn't work year-round, you'll also need to take that into account for your calculations. As Business Insider notes, "if you used that portion of your home during just part of the year, you can only deduct expenses incurred during that time."

What other tax deductions can you claim if you WFH?

The portion of your home regularly dedicated to your work isn't the only potential tax deduction available to those who WFH. According to U.S. News & World Report, "you may be able to deduct other expenses for setting up an office in your home."

For instance, per U.S. News & World Report, this could include "the cost of buying a computer (based on the portion of time you used it for business), printer, modem, office desk and chair, file cabinets and even lighting for Zoom calls you make for your business," as well as "a dedicated phone line or internet connection for the business."

Just make sure to hang onto your receipts for any costs covered by your business or, if you're self-employed, out of your own pocket. According to TaxAct, "it's always essential to keep good records," so make sure to "file away all of your receipts for safekeeping, so you have them as a backup for proof in the event of an audit."

Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.