CHAPTER 20
Travel and Meal Expense Deductions

Unreimbursed employee travel expenses are not deductible, except for a very limited number of employees who may claim their expenses on Form 2106 and deduct them as an above-the-line adjustment to income (20.1).

Under an “accountable plan” arrangement, an expense allowance from an employer for travel costs is not reported as income on Form W-2 if you substantiated the expenses to your employer and returned any unsubstantiated portion of the allowance (20.18). If you are self-employed, travel expenses are claimed on Schedule C (40.6).

The types of deductible travel expenses are highlighted in Table 20-1. You must be away from home to deduct travel expenses on overnight business trips. Meal costs on overnight trips away from home are subject to restrictions, including a 50% deduction limit (80% for certain transportation workers; 20.15). On one-day business trips within the general area of your employment, only transportation costs may be deducted; meals may not.

To support your travel expense deductions, keep records that comply with IRS rules (20.16).

You may no longer deduct entertainment expenses. Although deductions for entertainment have been eliminated, a 50% deduction may still be claimed for business meals provided that IRS requirements are satisfied (20.13, 20.14).

20.1 Who May Deduct Travel and Transportation Expenses

Due to the suspension of miscellaneous itemized deductions subject to the 2% floor (19.2), the only employees who may deduct unreimbursed travel and transportation costs for 2018 through 2025 are those in the following limited categories: (1) Armed Forces reservists who have reserves-related expenses for trips away from home (20.6) of more than 100 miles (35.8), (2) fee-basis state or local government officials (12.2), and (3) qualifying performing artists (see requirements at 12.2).

Employees in these three categories use Form 2106 to report their eligible business expenses and employer reimbursements if any. Meals on business trips away from home are reduced by 50% on Form 2106. The qualifying portion of their unreimbursed expenses from Form 2106 is entered as an above-the-line deduction (“adjustment to income”) on Line 11 of Schedule 1 (Form 1040 or 1040-SR), so it is allowed whether the standard deduction is claimed or deductions are itemized on Schedule A (12.2).

Employees who are not within categories (1) through (3) may not use Form 2106 and may not deduct unreimbursed travel and transportation costs for 2018 through 2025.

Self-employed individuals, as well as employees in categories (1) through (3), should see Table 20-1, which summarizes the rules for deducting local business transportation costs and travel expenses while “away from home” (20.6) on business trips. Generally, commuting expenses from your home to your place of business when you are not away from home are not deductible (20.2). However, you may be able to claim a deduction for daily transportation expenses incurred in commuting (20.2) to a temporary job location; see Table 20-1.

If you are self-employed, claim your deductible transportation and travel costs on Schedule C (40.6).

20.2 Commuting Expenses

The cost of travel between your home and place of work is generally not deductible, even if the work location is in a remote area not serviced by public transportation. Nor can you justify the deduction by showing you need a car for faster trips to work or for emergency trips. Travel from a union hall to an assigned job is also considered commuting. If you join a car pool, you may not deduct expenses of gasoline, repairs, or other costs of driving you and your passengers to work.

According to the IRS, if you use your cell phone to make calls to clients or business associates while driving to your office, you are still commuting and your expenses are not deductible. Similarly, the deduction is not allowed if you drive passengers to work and discuss business.

court Court Decision

Self-Employed Person’s Office at Home

If you are self-employed and your regular office is outside your home, you may not deduct the cost of commuting to the office or from that office to your home even if you work at home at a second job. However, if your home office is your principal place of business (40.12), you can deduct travel costs between the home office and the offices or worksites of your clients or customers.

Deductible commuting expenses. The IRS allows these exceptions to its blanket ban on commuting expense deductions.

If you are on a business trip out of town, you may deduct taxi fares or other transportation costs from your hotel to the first business call of the day and all other transportation costs between business calls.

If you use your car to carry tools to work, you may deduct transportation costs where you can prove that they were incurred in addition to the ordinary, nondeductible commuting expenses. The deduction will be allowed even if you would use a car in any event to commute; see the Examples below.

Commuting to a temporary place of work. Whether you can deduct commuting expenses to a temporary place of work may depend on the location of the temporary assignment and whether you have a regular place of business or a home office that is your principal place of business. According to the IRS, if you have a regular place of work outside of your home, or you have a home office that is your principal place of business, you may deduct the cost of commuting between your home and a temporary (see below) work location, regardless of where the temporary location is.

If you do not have a regular place of work but normally work at several locations in the metropolitan area where you live, you may deduct the costs of commuting to a temporary location that is outside that metropolitan area, but not to a temporary location within the metropolitan area. If you do not have a regular place of work and all of your work assignments are outside the metropolitan area where you live, none of your commuting costs are deductible under the IRS rule.

What is a temporary place of work? A temporary work location is one at which your assignment is realistically expected to last, and actually does last, for one year or less. If at first you realistically expect an assignment to last for no more than one year but that expectation changes, the IRS will generally treat the assignment as temporary until the date that it became realistic to expect that the work would exceed one year.

Accountants, architects, engineers, and other professionals often have to travel to job sites of their clients. If such work at the site is temporary and they can show they also have a regular work office, they may deduct commuting expenses from their homes to their work sites.

cau Caution

IRS Definition of “Temporary”

The IRS considers a work location temporary if the period of work is realistically expected to last, and actually does last, one year or less. If you take an assignment expected to last more than a year but it actually lasts less than a year, your assignment is not considered temporary and commuting costs are not deductible.

20.3 Overnight-Sleep Test Limits Deduction of Meal Costs

The overnight-sleep rule prevents the deduction of meal costs on one-day business trips. To be deductible, meal costs must be incurred while “away from home” and this test requires that they be on a business trip that lasts longer than a regular working day (but not necessarily 24 hours) and requires time off to sleep (not just to eat or rest) before returning home. Meal costs while away from home are subject to the 50% deduction limit (20.15). Taking a nap in a parked car off the road does not meet the overnight-sleep test.

Several courts held that the IRS rule was unreasonable and outdated in the world of supersonic travel, and they would have allowed the New Yorker on the one-day trip to Washington, D.C., to deduct the cost of his lunch. The Supreme Court disagreed and upheld the IRS rule as a fair administrative approach.

Meal costs during overtime. Such costs are not deductible if you are not away from your place of business. Thus, for example, a resident physician could not deduct the cost of meals and sleeping quarters at the hospital during overnight or weekend duty.

Table 20-1 Deductible Travel and Transportation Expenses

Caution: If you are an employee, you may not deduct any unreimbursed employee travel and transportation costs for 2018 through 2025 unless you are (1) a fee-basis state or local government official, (2) an Armed Forces reservist who travels over 100 miles from home to attend reservist meetings or trainings, or (3) a qualifying performing artist; see 20.1.

Your Travel Status— Tax Rule—
Local trips to see customers and client You may deduct your transportation expenses but not the cost of personal meals on one-day business trips within the general area of your tax home.
Overnight trips away from home On business trips “away from home,” you may deduct the cost of travel between your home and business destination, meals and lodging while away, as well as local transportation expenses at the destination (20.5).
Work in an area other than where you have your residence EXAMPLE: You live with your family in Chicago, but work in Milwaukee where your business is located. During the week, you stay in a hotel in Milwaukee and eat meals in a restaurant. You return to your family in Chicago every weekend. Milwaukee is your “home” for tax purposes; see 20.6. Thus, your expenses for traveling to Milwaukee and your meals and lodging there are personal, nondeductible expenses.
Temporary assignment in an area other than where you have your residence

EXAMPLE: You live in and operate your business in Kansas City. To supervise a project in Omaha, you travel to Omaha where you stay for 60 days. Occasionally, you return to Kansas City on your days off, and the rest of the time you stay in Omaha.

 You may deduct the necessary expenses for traveling away from home from Kansas City to Omaha and returning to Kansas City after your temporary assignment is completed. You may also deduct expenses for meals and lodging (even for your days off) while you are in Omaha. As discussed at 20.8, deductions are not allowed on temporary assignments that are expected to last more than one year.
Weekend trip home from temporary assignment

EXAMPLE: Same facts as in the Example above except that you return home to Kansas City on weekends.

 You are not “away from home” while you are in Kansas City on your days off and your meals and lodging while you are there are not deductible. However, you may deduct your traveling expenses (including meals and lodging, if any) from Omaha to Kansas City and back if they are no more than the amount it would have cost you for your meals and lodging if you had stayed in Omaha. If they are more, your deduction is limited to the amount you would have spent in Omaha. If you retain your room in Omaha while in Kansas City, your expenses of returning to Kansas City on days off are deductible only to the extent of the amount you would have spent for your meals had you stayed in Omaha.
Seasonal work in different areas

EXAMPLE: You live in Cincinnati, where you work for eight months each year. You earn the greater share of your annual income from that work. For the remaining four months of the year, you work in Miami. When in Miami, you eat and sleep in a hotel. You have been working in both of these cities for several years and expect to continue to do so.

 You have two recurring seasonal places of business. Cincinnati is your principal place of business. You may deduct the costs of your traveling expenses while away from Cincinnati working at your minor place of business in Miami, including meals and lodging in Miami.
Convention trip You may deduct costs of travel to a business convention under the rules in 20.11. If you are a delegate to a charitable or veterans’ convention, you may claim a charitable deduction for the travel costs (14.4).
Trip for health reasons If you claim itemized expenses on Schedule A, you may deduct the cost of the trip as a medical expense if you meet the rules at 17.9.

20.4 IRS Meal Allowance

If you find it difficult to keep records of meal costs while away from home (20.3) on business trips, you may prefer to claim an IRS meal allowance. In government tables, the allowance is referred to as the “M&IE” rate (rate for meals and incidental expenses), the amount of which depends on where you travel. In addition to meals and tips for food servers, the allowance (M&IE rate) covers a limited amount of “incidental” expenses such as fees and tips for porters, baggage carriers, hotel maids, or room stewards. Self-employed individuals may claim the M&IE allowance (40.6), as well as employees listed in 20.1 who have qualifying expenses that are not reimbursed under an “accountable” plan (20.18). You must keep a record of the time, place, and business purpose of the trips. As long as you have this proof, you may claim the allowance even if your actual costs for meals and incidental expenses are less than the allowance.

If you are self-employed, the allowance is claimed on Schedule C, where the deductible amount must be reduced by 50%, unless the 80% deduction for transportation workers subject to the Department of Transportation hours of service limits applies (40.6).

Employees eligible to deduct travel costs (only if they are listed at 20.1) claim the meal allowance, reduced by 50%, on Form 2106; see 20.1.

Meal allowance on 2020 tax returns. For business travel during 2020 within the lower 48 continental U.S. (referred to as CONUS locations), the standard meal allowance (M&IE) for most locations is $55 per day, but higher rates of $56, $61, $66, $71, or $76 apply in major cities and other high-cost locations (such as resort areas), as determined by the federal government’s General Services Administration (GSA). The location-specific CONUS M&IE rates can be obtained from the GSA website at gsa. gov/perdiem. The GSA website lists M&IE rates by reference to the federal government’s fiscal year, which begins October 1, and the per-locality rate is the same for that entire fiscal year. The M&IE rates were the same for fiscal year 2020 (which began October 1, 2019, and ended September 30, 2020) as they are for fiscal year 2021 (which began October 1, 2020, and will end September 30, 2021). That is why for a prticular locality, the rates shown above ($55, $56, $61, $66, $71, or $76) apply for all 2020 business travel. These rates will also apply to travel in 2021 through September 30, when fiscal year 2021 ends.

If you travel to more than one area on a given day, use the M&IE rate for the area where you stop for sleep. A special M&IE rule applies to workers in the transportation industry, as discussed below.

Travel outside the continental United States. Different rates apply for travel in Alaska, Hawaii, Puerto Rico, and U.S. possessions, as well as for travel to foreign countries. These rates (OCONUS) are set by the Defense Department and there is a link to the DoD site from the GSA website at Gsa.gov/perdiem.

Transportation industry workers. Self-employed persons in the transportation industry may elect to claim a special M&IE rate. The special rate avoids the need to apply the CONUS or OCONUS M&IE rates on a locality-by-locality basis. You cannot combine the two methods. If the special rate is used for one trip, it must be used for all trips during the same year.

For all of 2020, the special transportation industry M&IE rate was $66 per day for any CONUS location and $71 per day for any OCONUS location. These rates will also apply for the first nine months of 2021.

Allowance for first and last day must be reduced. The M&IE allowance is prorated for the first and last day of a trip. You may claim 75% of the allowance for the days you depart and return. Alternatively, you may claim 100% of the allowance if you are away for a regular “9-to-5” business day.

20.5 Business Trip Deductions

If you are self employed or an employee listed in 20.1, the following expenses of a business trip away from home (20.6) are deductible:

  • Plane, railroad, taxi, ride-share, and other transportation fares between your home and your business destination
  • Hotel and other lodging expenses. You need receipts or similar evidence for lodging expenses; there is no IRS standard lodging allowance as there is for meals (20.4).
  • Meal costs. You may claim your actual meal costs if you maintain records to substantiate the expense (20.16). and the amount is not “lavish or extravagant,” which, according to the IRS, means it is reasonable under the circumstances. Alternatively, you may use the standard meal allowance (20.4). Whichever method you use, only 50% of the unreimbursed meal costs are deductible unless the 80% limit for workers subject to Department of transportation limits applies (20.15).
  • Tips, telephone, and telegraph costs
  • Laundry and cleaning expenses
  • Baggage charges (including insurance)
  • Cab fares or other costs of transportation to and from the airport or station and your hotel. Also deductible are cab fares or other transportation costs, beginning with your first business call of the day, of getting from one customer to another, or from one place of business to another.

fil Filing Tip

How Much To Deduct for Spouse

If your spouse accompanied you on a business trip, your bills will probably show costs for both of you. These usually are less than twice the cost for a single person. To find what you may deduct where your spouse’s presence is for personal and not qualifying business reasons, do not divide the bill in half. Figure what accommodations and transportation would have cost you alone and deduct that. The excess over the single person’s costs is not deductible.

Travel costs of a spouse, dependent, or business associate. Travel costs of a spouse, dependent, or any other individual who accompanies you on a business trip are not deductible unless that person is also your employee or your business associate (partner, agent, advisor, client, customer, supplier) who has a bona fide business reason for taking the trip that would justify claiming a deduction if the person took the trip on his or her own.

Cruise ship. If you travel by cruise ship on a business trip, your deductible cruise costs are limited to twice the highest federal per diem rate for travel in the United States on that date multiplied by the number of days in transit.

Important: Recordkeeping requirements. See the section for recordkeeping rules to support a deduction for unreimbursed travel expenses or to avoid being taxed on employer reimbursements (20.16).

20.6 When Are You Away From Home?

You have to meet the “away from home” test to deduct the cost of meals (usually only 50% deductible) and lodging while traveling (20.5). You have to be away from your tax home and satisfy the overnight-sleep rule (20.3) to be “away from home.” In general, your tax home is the city or general area in which your regular place of business or post of duty is located, regardless of where your family is.

Do you regularly work at more than one location? If you regularly work in two or more separate locations, your tax home is the area of your principal place of business or employment. You are away from home when you are away from the area of your principal place of business or employment. Therefore, you may deduct your transportation costs to and from your minor place of business and your living costs there.

law Law Alert

Tax Home Defined

For travel expense purposes, your home is your place of business, employment, or post of duty, regardless of where you maintain your family residence. This tax home includes the entire city or general area of your business premises or place of employment. The area of your residence may be your tax home if your job requires you to work at widely scattered locations, you have no fixed place of work, and your residence is in a location economically suited to your work.

Are you constantly on the road? If you do not work within any particular locality, an IRS agent may disallow your travel deductions on the grounds that your tax home is wherever you work; thus, you are never “away from home.” You are considered a transient worker.

If your deduction is questioned because you have no regular or main place of business, you may be able to show that your tax home is the area of your residence. If you meet the following three tests, the IRS will treat your residence as your tax home: (1) you do some work in the vicinity of your residence, house, apartment, or room and live there while performing services in the area; (2) you have mortgage expenses or pay rent for the residence while away on the road; and (3) the residence is in an area where you were raised or lived for a long time, or a member of your immediate family such as your parent or child lives in the residence, or you frequently return there.

According to the IRS, if you meet only two of these three tests, it will decide on a case-by-case basis if your residence is your tax home. If you meet less than two of the tests, the IRS will not allow a deduction; each of your work locations is treated as your tax home.

If you live in a trailer at each work location and have no other home, each location is your principal place of business and you are not “away from home.”

clock Planning Reminder

Determining Your Principal Place of Business

If you have more than one regular place of business, your tax home is your principal place of business. Your principal place of business or employment is determined by comparing: (1) the time ordinarily spent working in each area; (2) the degree of your business activity in each area; (3) the amount of your income from each area; (4) the taxpayer’s permanent residence; and (5) whether employment at one location is temporary or indefinite.

No single factor is determinative. The relative importance of each factor will vary depending on the facts of a particular case. For example, where there are no substantial differences between incomes earned in two places of employment, your tax home is probably the area in which you spend more of your time. Where there are substantial income differences, your tax home is probably the area in which you earn more of your income.

Permanent duty station of service members. The Supreme Court held that a member of the Armed Forces is not away from home when he or she is at a permanent duty station. This is true even if the service member has to maintain a separate home for family members who are not permitted to live at the duty station.

20.7 Tax Home of Married Couple Working in Different Cities

When a husband and wife work and live in different cities during the week, one of them may seek to deduct travel expenses away from home. Such deductions have generally been disallowed, but courts have allowed some exceptions. Each spouse may have a separate tax home.

20.8 Deducting Living Costs on Temporary Assignment

A business trip away from home (20.6) at a single location may last a few days, weeks, or months. If your assignment is considered temporary, you may deduct travel costs (see below) while there because your tax home has not changed. The IRS considers an assignment to be temporary if you realistically expect it to last for one year or less and it actually does last no more than one year. If an assignment is realistically expected to last more than a year it is considered indefinite, and you cannot deduct your living costs at the area of the assignment because that location becomes your tax home. This is true even if the assignment actually lasts only a year or less. That is, you can be away for a year or less and still be barred from claiming a deduction if at the time you started the assignment you realistically expected it to last for more than a year. Likewise, employment that is initially temporary may become indefinite due to changed circumstances; see the Examples below.

Deductible travel costs on temporary trip. While on a temporary assignment expected to last a year or less, you may deduct the cost of meals (usually only 50% deductible; see 20.15), and lodging at the temporary location, even for your days off. If you return home, say for weekends, your living expenses at home are not deductible. You may deduct travel expenses, meals, and lodging en route between your home and your assignment location provided they do not exceed your living expenses had you stayed at the temporary location. If you keep a hotel room at the temporary location while you return home, you may deduct your round-trip expenses for the trip home only up to the amount you would have spent had you stayed at the temporary workplace.

cau Caution

Taking Your Family With You

If you take your family with you to a temporary job site, an IRS agent may argue that this is evidence that you considered the assignment to be indefinite. In the Michaels Example in this section, however, such a move was not considered detrimental to a deduction of living expenses at the job location.

Separate assignments over a period over a year. Where over a period of years you work on several separate assignments for one client, the IRS may attempt to treat the separate assignments as amounting to a permanent assignment and disallow living costs away from home, as in the Mitchell example below.

20.9 Business-Vacation Trips Within the United States

On a business trip to a resort area, you may also spend time vacationing. If the primary purpose of the trip is to transact business and the area is within the United States (50 states and the District of Columbia) you may deduct all of the costs of your transportation to and from the area, lodging, and 50% of meal expenses (20.6), even if you do spend time vacationing. If the main purpose of the trip is personal, you may not deduct any part of your travel costs to and from the area. The amount of time spent on business as opposed to sightseeing or personal visits is the most important issue in determining your primary purpose. Regardless of the primary purpose of your trip, you are allowed to deduct expenses related to the business you transacted while in the area.

No deductions will be allowed if you attend a convention or seminar where you are given videotapes to view at your own convenience and no other business-related activities or lectures occur during the convention. The trip is considered a vacation.

If your trip is primarily for business, and while at the business destination you extend your stay for a few days for nonbusiness reasons, such as to visit relatives, you deduct travel expenses to and from the business destination.

cau Caution

Primary Business Purpose

If your return is examined, proving the business purpose of your trip depends on presenting evidence to convince an examining agent that the trip, despite your vacationing, was planned primarily to transact business. Keep a log or diary to substantiate business activities.

cau Caution

Vacation Areas

If the IRS determines that you were primarily on vacation, it will disallow all travel costs except for costs directly related to your business in the area such as registration fees at a foreign business convention (20.12).

20.10 Business-Vacation Trips Outside the United States

On a business trip abroad, you may deduct your travel expenses (the 50% limit applies for meals), even though you take time out to vacation, provided you can prove: (1) the primary purpose of the trip was business and (2) you did not have control over arranging the trip.

If you are an employee, selecting the date of the trip does not mean that you had control over the assignment. IRS regulations assume that when you travel for your company under a reimbursement or allowance arrangement, you do not control the trip arrangements, provided also that you are not: (1) a managing executive of the company; (2) related to your employer (20.4); or (3) have more than a 10% stock interest in the company. You are considered a managing executive if you are authorized without effective veto procedures to decide on the necessity of the trip. You are related to your employer if the employer is your spouse, parent, child, brother, sister, grandparent, or grandchild.

Rule for managing executives and self-employed persons. If you are a managing executive, self-employed, related to your employer, or have a more-than-10% stock interest, you are treated as having control over arranging the trip and your deduction for transportation costs to and from your business destination may be limited. However, a full deduction for transportation costs is allowed if:

  1. The trip outside the United States took a week (7 consecutive days) or less, not counting the day you left the U.S. but counting the day you returned,
  2. If the trip abroad lasted more than a week, you spent less than 25% of your time, counting the days your trip began and ended, on vacation or other personal activities, or
  3. In planning the trip you did not place a major emphasis on taking a vacation.

If the vacationing and other personal activities took up 25% or more of your time on a trip lasting more than one week, and you cannot prove that the vacation was a minor consideration in planning the trip, you must allocate travel expenses between the time spent on business and that spent on personal affairs. The part allocated to business is deductible; the balance is not. To allocate, count the number of days spent on the trip outside the United States, including the day you leave the U.S. and the day you return. Then divide this total into the number of days on which you had business activities; include days of travel to and from a business destination.

If you vacation at, near, or beyond the city in which you do business, the expense subject to allocation is the cost of travel from the place of departure to the business destination and back. For example, you travel from New York to London on business and then vacation in Paris before returning to New York. The expense subject to allocation is the cost of traveling from New York to London and back; see Example 2 below. However, if from London you vacationed in Dublin before returning to New York, you would allocate the round-trip fare between New York and Dublin and also deduct the difference between that round-trip fare and the fare between New York and London; see Example 3 below.

fil Filing Tip

Weekend Expenses

If your business trip is extended over a weekend to take advantage of reduced airfares, the additional cost of meals, lodging, and other incidental expenses is deductible.

Weekends, holidays, and business standby days. If you have business meetings scheduled before and after a weekend or holiday, the days in between the meetings are treated as days spent on business for purposes of the 25% business test discussed above. This is true although you spend the days for sightseeing or other personal travel. A similar rule applies if you have business meetings on Friday and the next scheduled meeting is the following Tuesday; Saturday through Monday are treated as business days. If your trip is extended over a weekend to take advantage of reduced airfares, the additional expense of meals, lodging, and other incidental expenses is deductible (20.10).

20.11 Deducting Expenses of Business Conventions

Conventions and seminars at resort areas usually combine business with pleasure. Therefore, the IRS scrutinizes deductions claimed for attending a business convention where opportunities exist for vacationing. Especially questioned are trips where you are accompanied by your spouse and other members of your family. Deducting expenses of foreign conventions is subject to restrictions (20.12).

You may not deduct expenses of attending investment conventions and seminars (19.2). You also may not deduct the costs of business conventions or seminars where you merely receive a video or download of business lectures to be viewed at your convenience and no other business-related activities occur during the event.

In claiming a deduction for convention expenses, be prepared to show that your attendance at the convention benefitted your business. Cases and IRS rulings have upheld deductions for doctors, lawyers, and dentists attending professional conventions. One case allowed a deduction to a legal secretary for her costs at a secretaries’ convention. If you are a delegate to a business convention, make sure you prove you attended to serve primarily your own business interests, not those of the association. However, it is not necessary for you to show that the convention dealt specifically with your business. It is sufficient that attendance at the convention may advance or benefit your business. If you fail to prove business purpose, the IRS will allocate your expenses between the time spent on your business and the time spent as a delegate. You then deduct only the expenses attributed to your business activities.

What expenses are deductible? If the convention trip is primarily for business, you may deduct travel costs both to and from the convention, food costs, tips, display expenses (such as sample room costs), and hotel bills. If you entertain business clients or customers, you may deduct these amounts too.

Food and beverage costs are subject to the 50% cost limitation rule (20.15).

Keep records of your payments identifying expenses directly connected with your business dealings at the convention and those that are part of your personal activity, such as sightseeing, social visiting, and entertaining. Recreation costs are not deductible even though a part of your overall convention costs.

cau Caution

Substantiate Convention Business

Keep a copy of the convention program and a record of the business sessions you attend. If the convention provides a sign-in book, sign it. In addition, keep a record of all of your business expenses (20.16).

Fraternal organizations. You may not deduct expenses at conventions held by fraternal organizations, such as the American Legion, Shriners, etc., even though incidental business was carried on. However, delegates to fraternal conventions may in some instances deduct expenses as charitable contributions (14.4).

20.12 Restrictions on Foreign Conventions and Cruises

You may not deduct expenses at a foreign convention outside the North American area unless you satisfy the general deduction rules (20.10) and also can show the convention is directly related to your business and it was as reasonable for the meeting to be held outside the North American area as within it.

Apart from the United States, the North American area includes Mexico, Canada, Puerto Rico, U.S. Virgin Islands, American Samoa, Northern Mariana Islands, Guam, Marshall and Midway Islands, Micronesia, Palau and U.S. island possessions.

Conventions may also be held in eligible Caribbean countries that agree to exchange certain data with the U.S. and do not discriminate against conventions held in the United States. Antigua and Barbuda, Aruba, Bahamas, Barbados, Bermuda, Costa Rica, Curacao, Dominica, Dominican Republic, Grenada, Guyana, Honduras, Jamaica, Panama, Saint Lucia, and Trinidad and Tobago have qualified and are considered to be within the North American area.

Check with the convention operator about whether the country in which your convention is being held has qualified.

Limited cruise ship deduction. Up to $2,000 a year is allowed for attending cruise ship conventions if all the ports of call are in the U.S. or U.S. possessions and if the ship is registered in the United States. A deduction is allowed only if you attach to your return statements signed by you and by an officer of the convention sponsor that detail the daily schedule of business activities, the number of hours you attended these activities, and the total days of the trip. Do not confuse the $2,000 limitation with the per diem limitation for cruise ship costs (20.5). The per diem limitation does not apply to cruises that meet the tests for the up-to-$2,000 deduction.

20.13 Entertainment Expenses Generally Not Deductible

A business expense deduction is not allowed for the cost of attending entertainment events, such as tickets to theaters and sporting events. Also nondeductible are club dues and membership fees, and the costs of owning, renting or using an entertainment facility; see below.

Business meal costs are generally deductible. Before 2018, deductions were allowed for meal expenses that were “directly related to” or “associated with” the active conduct of a business, but these rules were repealed for years after 2017. The repeal of the “directly related to” or “associated with” tests caused confusion as to whether business meals for clients, customers, vendors, and other business associates would still be deductible, but the IRS has provided guidelines that allow a 50% deduction for such business meals, provided the tests at 20.14 are met. Employers may deduct 100% for certain meal costs, such as reimbursed expenses that are treated as taxable compensation, and recreational expenses for employees such as holiday parties and picnics (20.15).

Club dues and membership fees. No deduction is allowed for dues or membership fees for country clubs, golf and athletic clubs, airline clubs, hotel clubs, business luncheon clubs, and other clubs organized for business, pleasure, recreation, or other social purposes. However, an IRS regulation allows a deduction for dues paid to (1) civic or public service organizations such as Kiwanis, Lions, and Rotary clubs; (2) professional organizations such as medical or bar associations; and (3) chambers of commerce, trade associations, business leagues, real estate boards, and boards of trade. The regulation allows the deduction for dues provided that the organization in (1)–(3) does not have a principal purpose of providing entertainment for members or their guests.

Costs of using entertainment facilities. No deduction is allowed for the expenses of using, maintaining and operating facilities used to entertain clients and customers. Examples of entertainment facilities include country clubs, golf clubs, yachts, hunting lodges, fishing camps, swimming pools, tennis courts, bowling alleys, automobiles, airplanes, apartments, hotel suites, or homes in a vacation area. The disallowance rule applies to operating expenses such as rent, utilities, and security, and also to depreciation, but not to such expenses as interest, taxes, and casualty losses that are deductible without having to show business purpose.

20.14 Business Meals Are Generally Deductible

In general, IRS guidelines allow taxpayers to deduct 50% of the cost of business meals, so long as the taxpayer (or an employee) is present during the meal, the cost of the food and beverages is not lavish or extravagant, and, when food and beverages is provided during an entertainment event, the cost is separately billed.

In Notice 2018-76, the IRS provided rules for distinguishing deductible business meal expenses from nondeductible entertainment expenses, and, in 2020 proposed regulations, the IRS substantially incorporated the guidance in Notice 2018-76 and provided other deduction details (REG-100814-19, 2020-12 IRB 542). Recently released final regulations (T.D. 9925) substantially incorporate the guidance in Notice 2018-76 and the proposed regulations; details on the final regulations will be in the e-Supplement at jklasser.com.

Meals during or at an entertainment activity. Although the cost of attending an entertainment event is not deductible (20.13), the cost of food and beverages during or at an entertainment event is not treated as an entertainment expense, and thus 50% of the cost (including tips and sales tax) is deductible, if all of the following conditions are met:

  1. The expense is an ordinary and necessary business expense paid or incurred during the taxable year;
  2. The expense is not lavish or extravagant under the circumstances;
  3. The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
  4. The food and beverages are provided to a business associate (see below for the IRS definition); and
  5. The food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on a bill, invoice, or receipt. The bill, invoice, or receipt must reflect the venue’s usual selling price for separately purchased food and beverages, or must approximate their reasonable value. If the food and beverages are included in the cost of the entertainment event, the IRS does not allow you to allocate part of the cost to the food and beverages; the entire amount is treated as a nondeductible entertainment expense (Example 2 below).

Meals with business associates. You may deduct 50% of the cost of meals with a business associate, provided (1) the expense is an ordinary and necessary business expense, (2) the expense is not lavish or extravagant under the circumstances, and (3) you or your employee is present when the food or beverages are furnished. The cost of the meal includes tips, sales tax, and delivery charges if any.

The IRS broadly defines a business associate as any person with whom you could reasonably expect to engage or deal in the active conduct of your business, such as an established or prospective customer, client, supplier, employee, agent, partner or professional adviser.

A 100% deduction, rather than 50%, is allowed for certain food and beverage costs; see 20.15.

20.15 50% Cost Limitation on Most Deductible Meals

You can generally only deduct 50% of meal expenses on business trips away from home (20.5). However, the deductible percentage for workers subject to the Department of Transportation’s “hours of service” limits is 80% rather than 50%. If you are self-employed and claim expenses for business travel while away from home, the 50% deduction limitation for meals (or 80% if you qualify) is taken into account on Line 24b of Schedule C (40.6), whether you claim the IRS meal allowance (20.4) or actual meal expenses (including taxes and tips).

As discussed at 20.1, most employees are no longer able to deduct business travel expenses, including meals away from home, because miscellaneous itemized deductions are no longer allowed. Only employees listed at 20.1 can deduct business travel expenses, subject to the 50% deduction limit on meals.

50% of business associate meals generally deductible. For meals with business associates that qualify under the IRS rules at 20.14, the 50% deduction limit applies.

As discussed below, a 100% deduction is allowed for certain reimbursed meal costs and for certain food and beverages provided to employees or the general public.

80% limit for certain transportation workers. The deductible percentage for meals on business trips away from home (20.6) is 80% instead of 50% where the meals are consumed “during or incident to” any period of duty for which the Department of Transportation (DOT) hours of service limits are in effect. Individuals subject to the DOT hours of service limits include interstate truck and bus drivers, pilots, crew and other air transportation workers such as mechanics and control tower operators, and certain merchant mariners.

Food or beverages provided on premises to employees. The 50% deduction limit applies for food or beverages provided to your employees as a tax-free de minimis fringe benefit (3.10). This includes free drinks and snacks you provide in a pantry or “break room” for your employees. This also includes food and beverages you provide to employees in an on-premises cafeteria if the meals are tax free to employees because they are furnished for your convenience (you have a substantial noncompensatory business purpose; see 3.13).

However, if on-premises meals do not qualify as a tax-free de minimis fringe benefit, and you treat the value of the food and beverages as taxable wages, you may deduct 100% of the food and beverage costs.

100% deduction for reimbursed meals treated as taxable compensation. If you reimburse employees for food or beverage costs that they do not adequately account for (20.18), the reimbursement is treated as taxable wages, which you can fully deduct. A similar rule applies if you reimburse an independent contractor for meal costs he or she incurs on your behalf, but the contractor does not give you an adequate accounting for the expenses. You should report the rembursements as compensation to the contractor, and you may fully deduct the reimbursement.

IRS proposed regulations (REG-100814-19, 2020-12 IRB 542) have further details and examples of meal reimbursement arrangements that involve independent contractors.

100% deduction for food and beverages at recreational or social activities for employees. You may deduct 100% of the cost of food and beverages you provide at a recreational, social, or similar activity that is primarily for the benefit of your non-highly compensated employees. This includes holiday parties, annual picnics, summer outings, and similar events.

If only highly-compensated employees are invited, the 100% deduction does not apply, but if the cost of the food and beverages is separately stated and the other tests for meals at an entertainment event are met (20.14), you may deduct 50% of the food and beverage costs.

An example in the IRS proposed regulations (REG-100814-19, 2020-12 IRB 542) indicates that the 100% deduction does not apply for snacks and drinks provided in a break room for employees. Although it could be argued that employees may socialize while in the break room, the break room is not a recreational, social, or similar activity according to the IRS, so the employer’s deduction for the food and beverages is limited to 50%.

Another IRS example holds that the 100% deduction does not apply for meals provided in an on-premises cafeteria where the meals are tax free to the employees because they are provided for the “convenience of the employer” (3.10). Since the food and beverages are provided for the employer’s convenience, they cannot be primarily for the benefit of employees, so the employer’s deduction for them is limited to 50%, even if there is some socializing between employees while in the cafeteria.

100% deduction for food or beverages provided to the general public. If you provide food or beverages to the general public for advertising or goodwill purposes, the cost is 100% deductible. This includes refreshments in your office lobby or waiting room, or at a promotional open house. Where the food or beverages are available to employees as well the general public, the entire cost is 100% deductible if more than 50% is consumed by the general public. For example, if refreshments in your waiting room are available to employees as well as customers, and over 50% of the actual or reasonably estimated food and beverage consumption is by customers, the entire cost of the food and beverages is deductible. If the over 50% test is not met, only the costs attributable to the food and beverages for the customers qualifies for the 100% deduction.

100% deduction for food or beverages sold to customers. A restaurant or catering business may deduct 100% of its costs for food and beverages that are purchased for sale to customers, even if employees are allowed to eat for free before, during, and after their shifts.

20.16 Substantiating Travel Expenses

To meet IRS substantiation requirements for costs of business trips “away from home,”(20.5), you need two types of records in the event of an audit:

  1. A computer log, diary, account book, or similar record to list the time, place, and business purpose of your travel expenses; and
  2. Receipts, itemized paid bills, or similar statements for lodging regardless of the amount, and for other expenses of $75 or more. But note these exceptions:
    • A receipt for transportation expenses of $75 or more is required only when it is readily obtainable.
    • A canceled check by itself is not an acceptable voucher. If you cannot produce a bill or voucher, you may have to present other evidence such as a statement in writing from witnesses to prove business purpose of the expense.
    • A receipted bill or voucher must show (1) the amount of the expense; (2) the date the expense was incurred; (3) where the expense was incurred; and (4) the nature of the expense.
    • A receipt for meals or lodging is not needed if its cost is covered by a per diem allowance under an accountable plan (20.19).

A hotel bill must show the name, location, date, and separate amounts for charges such as lodgings, meals, and telephone calls. The IRS will not allow a credit card statement to substitute for a lodging receipt. The IRS wants detailed receipts to catch personal items such as personal phone calls or the purchase of gifts.

A restaurant bill must show the restaurant’s name and location, the date and amount of the expense, and, when a charge is made for items other than meals or beverages, a description of the charge.

Account book or computer entries. Your records do not have to duplicate data recorded on a receipt, provided that a notation in your record is connected to the receipt. You are also not required to record amounts your company pays directly for any ticket or fare. Credit card charges should be recorded.

clock Planning Reminder

Credit Cards

Credit card charge statements for travel costs meet the IRS tests, provided the business purpose of the expense is also shown. Credit card statements provide space for inserting the names of people entertained, their business relationship, the business purpose of the expense, and the portion of the expense to be allocated to business and personal purposes. These statements generally meet the IRS requirements of accounting to your employer for reimbursed expenses (20.18), provided a responsible company official reviews them. However, you need a receipt for lodging; the IRS will not accept a credit card statement as substantiation of a lodging expense.

Excuses for Inadequate Records

Substantial compliance. If you have made a “good faith” effort to comply with the IRS rules, you will not be penalized if your records do not satisfy every requirement. For example, you would not automatically be denied a deduction merely because you did not keep a receipt.

Accidental destruction of records. If receipts or records are lost or destroyed through circumstances beyond your control, such as in a flood or fire, you may substantiate deductions by reasonable reconstruction of your expenditures.

Exceptional circumstances. If, by reason of the “inherent nature of the situation,” you are unable to keep adequate records, you may substantially comply by presenting the best evidence possible given the circumstances. IRS regulations do not explain the meaning of “inherent nature of the situation.”

20.17 Employee Reporting of Unreimbursed Expenses

If you are paid a salary with the understanding that you will pay all of your travel expenses without reimbursement, you report all of your salary or commission income as shown on Form W-2. Under current law, you may not claim a deduction for the expenses, because the itemized deduction for unreimbursed job expenses is suspended (19.2). However, if you are an employee within one of the limited employee categories discussed at 20.1, you may be able to deduct travel costs.

The result is the same if your employer has a reimbursement plan but the rules for accountable plans are not met; the reimbursements are treated as part of your taxable pay and you may not claim an offsetting deduction (20.18).

clock Planning Reminder

Sampling Can Support Deduction

If an adequate record of expenses is kept for part of a tax year, and that period is representative of the whole year, the IRS will accept those records as proof of expenses for the entire year. For example, if you keep records for the first week of each month that show that 75% of the use of your car is for business purposes, and your invoices and bills show the same business pattern for the rest of each month, the IRS will treat your partial record as proof of 75% business use for the whole year.

20.18 Are You Reimbursed Under an Accountable Plan?

A reimbursement or allowance arrangement is an accountable plan if you must:

  • Adequately account to your employer for your job expenses; and
  • Return to your employer any excess reimbursement or allowance that you do not show was spent for ordinary and necessary business expenses.

If these requirements are not met, the plan is treated as a nonaccountable plan, and all reimbursements are reported as wages on your Form W-2 (20.21).

If these requirements are met, the plan is treated as an accountable plan, and reimbursements made to you by the plan are not reported as taxable wages on your Form W-2. However, if the reimbursement is less than your expenses, you may not claim a deduction for the difference, except in the unlikely case that you are an employee listed at 20.1. Under prior law, employees who itemized deductions could use Form 2106 to report their expenses and the reimbursement, and then enter the unreimbursed amount on Schedule A, where a deduction was limited by the 2% of AGI floor applicable to total miscellaneous itemized deductions. However, this limited deduction opportunity is not an option for 2018 through 2025, as the deduction for unreimbursed job expenses, as well as other miscellaneous deductions, has been suspended for these years (19.2).

For employees listed at 20.1, Form 2106 may be used to report unreimbursed job expenses (meals on business trips away from home are subject to a 50% reduction), and an above-the-line deduction for eligible amounts may be claimed; see 20.1.

What is an adequate accounting? You adequately account to your employer by submitting receipts and an account book, diary, or similar record in which you entered each expense at or near the time you had it. You must account to your employer for all amounts received as advances, reimbursements, or allowances, including amounts charged on a company credit card. Your records and supporting information must meet IRS rules (20.16). You must also pay back reimbursements or allowances that exceed the expenses that you adequately accounted for, or the nonreturned excess will be taxable under the rules for non-accountable plans (20.21).

The accounting requirements are eased if you are reimbursed under a per diem arrangement covering meals, lodging, and incidental expenses (20.19) or you receive a flat mileage allowance (20.20).

clock Planning Reminder

Importance of Adequate Accounting

If you adequately report expenses to your employer and return excess reimbursements, you are treated as being reimbursed under an accountable plan and generally do not have to report the reimbursed amount as income on your return.

Time limits for receiving advances, substantiating expenses, and returning excess payments. The general rule is that these events must occur within a reasonable time. Under an IRS “safe harbor,” the following payments are considered to be within a reasonable time:

  • Advance payments—if given to you within 30 days before you reasonably anticipate to pay or incur expenses;
  • Substantiation of expenses—if provided to your employer within 60 days after the expense is paid or incurred; and
  • Return of excess—if done within 120 days after you pay or incur expense.

fil Filing Tip

Failure To Timely Return Excess

If you fail to return excess payments within a reasonable time but you meet all of the other tests applied to an accountable plan, such as providing proof of the expenses, only the retained excess is taxed to you as if paid outside of an accountable plan.

An employer may set up a “periodic statement method” to meet IRS rules. Here, an employer gives each employee periodic statements (at least quarterly) that list the amounts paid in excess of expenses substantiated by the employee and request substantiation of the additional amounts paid, or a return of the excess, within 120 days of the date of the statement. Substantiation or return within the 120-day period satisfies the reasonable time test.

20.19 Per DiemTravel Allowance Under Accountable Plans

Instead of providing a straight reimbursement for substantiated out-of-pocket travel expenses, an employer may use a per diem allowance to cover meals, lodging, and incidental (20.4) expenses of employees on business trips away from home. If you are not related to the employer, you do not have to give your employer proof of your actual expenses if you receive a per diem allowance or reimbursement that is equal to or less than the federal travel rate for the particular area. You do have to account for the time, place, and business purpose of your travel. If you do not provide such an accounting for some travel days, you must be required to return the per diem allowance received for such days in order for the employer’s plan to qualify. If these tests are met, the allowance satisfies the accountable plan (20.18) requirements and it does not have to be reported as income on your Form W-2.

Federal travel rate. Tables published by the government show the federal travel rate for areas within the continental U.S. (called CONUS locations) and for areas outside the continental U.S., including Hawaii and Alaska (called OCONUS locations). New CONUS tables are released every October, effective for the government’s October 1– September 30 fiscal year (20.4). You can obtain the CONUS per diem rates from the General Services Administration website at www.gsa.gov. The OCONUS rates can also be accessed from the GSA website.

If an employer uses the CONUS per diem rates to reimburse employees in the first nine months of the year, the CONUS per diem method must also be used for those employees for the last three months of the year; the “high-low” method (see below) may not be used for those employees until the following calendar year. Where employees are reimbursed in the first nine months using the CONUS per diem rates, the employer may reimburse their travel during the last three months using the per diem rates for the first nine months, or may use the new per diem rates taking effect October 1.

High-low method. For business trips within the continental United States (CONUS), employers may use the IRS’ “high-low” method to reimburse employees for lodging, meals, and incidental expenses instead of using the locality-by-locality per diem CONUS rates set by the General Services Administration (GSA) for federal government workers. For each employee, either the federal per diem rates or the high-low method has to be used for the entire year.

There is a high-cost area rate and a rate for all other areas within CONUS. The rates are announced by the IRS in an annual notice that lists the areas qualifying for the high-cost rate, as well as the months for which the high-cost rate may be used if the area qualifies for less than the full year. For the period beginning October 1, 2019, and ending September 30, 2020, the rate for designated high-cost areas was $297 and the rate for other areas was $200 per day (IRS Notice 2019-55). For the period October 1, 2020, through September 30, 2021, the rates decline to $292 for high-cost areas and $198 for other areas (IRS Notice 2020-71).

For employer deduction purposes, $71 of the $297 (or $292) high-cost-area rate and $60 of the $200 (or $198) low-cost area rate, is allocable to meals.

Only 50% of the allocated meals portion is generally deductible (20.15). The meal deduction percentage is 80% for meal costs of transportation workers such as pilots and interstate truck/bus drivers who are subject to Department of Transportation limits on service hours.

Transition rules require employers that used the high-low rates for a particular employee during the first nine months of a year to continue to use the high-low method for that employee for the remainder of that calendar year. If an employer used the high-low method for business trips during the first nine months of 2020, then for the last three months, the employer may either (1) use the new high-low rates ($292 or $198) and list of high-cost localities that took effect October 1, 2020 (from Notice 2020-71), or (2) use the pre-October 2020 high-low rates ($297 or $200) and pre-October high-cost localities (from Notice 2019-55) for the last three months provided that those pre-October rates and localities are used for all employees who are reimbursed under the high-low method. An employer may not use the high-low method until 2021 for an employee whose expenses within CONUS for January through September 2020 were reimbursed using the locality-by-locality per diem CONUS rates set by the General Services Administration (GSA) for federal government workers.

Employees related to the employer. The IRS per diem rules that allow you to avoid accounting for actual expenses do not apply if you work for a brother, sister, spouse, parent, child, grandparent, or grandchild. They also do not apply if you are an employee-stockholder who owns more than 10% of the company’s stock.

Reporting a per diem allowance. If the allowance does not exceed the federal travel rate or IRS high-low rate, the reimbursement is not reported on Form W-2. You do not have to report the expenses or the reimbursement on your tax return; see Example 1 below. If your expenses exceed the allowance, you may not deduct the excess by reporting the expenses and reimbursement on Form 2106, unless you are an eligible employee listed at 20.1; see Examples 2 and 3 below.

If the allowance exceeds the federal rate, the allowance up to the federal rate is reported by the employer in Box 12 of your Form W-2, using Code L. This amount is not taxable. However, the excess allowance will be included as wages in Box 1 of your Form W-2; see Example 4 below.

cau Caution

Excess Per Diem Allowances

If a per diem allowance exceeds the federal travel rate or the IRS high-low rate, the excess will be reported as income on your Form W-2, unless you return the excess. The excess reportable on Form W-2 is also subject to income tax and FICA tax withholding.

Allowance covering only meals and incidentals. If your employer gives you a per diem allowance covering only meals and incidental expenses, it is not taxable to you if you are not related to the employer and the allowance does not exceed the IRS meal allowance rate for that locality (M&IE rate; see 20.4). Alternatively, for travel within CONUS, your employer may use the meals rate under the high-low method to substantiate the allowance. An allowance that does not exceed the applicable IRS high-low meals rate is not taxable to you.

For the first nine months of 2020, the amount allocable to meals under the high-low method is $71 for high-cost localities and $60 for other areas (IRS Notice 2019-55). The allocable amounts may change for the period beginning October 1, 2020, and ending September 30, 2021; see the e-Supplement at jklasser.com.

20.20 Automobile Mileage Allowance

If your employer paid you a fixed mileage allowance for business miles driven in 2020 of up to 57.5 cents per mile (the IRS standard mileage rate), the amount of your driving costs is treated as substantiated under the accountable plan rules (20.18), provided you show the time, place, and business purpose of your travel. If the allowance is in the form of an advance, it must be given within a reasonable period before the anticipated travel and you must also be required to return within a reasonable period (20.18) any portion of the allowance that covers mileage that you have not substantiated.

If these tests are met, the allowance will not be reported as income on Form W-2, and you will not have to report the allowance or expenses on your return; see Example 1 below. If you do not prove to your employer the time, place, and purpose of your travel, the entire reimbursement is treated as paid from a non-accountable plan and will be reported as income on your Form W-2.

Your employer may reimburse you for any parking fees and tolls in addition to the mileage allowance.

If you are not reimbursed for your business driving costs, or you are given a mileage allowance that is less than the expenses that you can substantiate, you may not use the 57.5 cents per mile allowance to claim a deduction for the unreimbursed costs unless you are an eligible employee described in 20.1.

Fixed and variable rate allowance (FAVR). In lieu of setting the allowance at the IRS standard mileage rate, an employer may use a fixed and variable rate allowance, called a FAVR, that gives employees a cents-per-mile rate to cover gas and other operating costs, plus a flat amount to cover fixed costs such as depreciation or lease payments, insurance, and registration. A FAVR allowance must reflect local driving costs and allows employers to set reimbursements at a rate that more closely approximates employee expenses. If your employer sets up a qualifying FAVR under IRS guidelines, you will be required to provide records substantiating your mileage and certain car ownership information. Expenses up to the FAVR limits are deemed substantiated and will not be reported as wages on your Form W-2.

20.21 Reimbursements Under Non-Accountable Plans

A non-accountable plan is one that either does not require you to adequately account for your expenses or allows you to keep any excess reimbursement or allowances over the expenses for which you did adequately account (20.18).

Your employer reports allowances or reimbursements for a non-accountable plan as part of your salary income in Box 1 of your Form W-2. The allowance or reimbursement is also subject to income tax and FICA tax (Social Security and Medicare) withholding. You cannot deduct your expenses to offset the reimbursement (or allowance) included in your income, unless you are eligible to file Form 2106 and claim an above-the-line deduction as explained at 20.1.