In response to the COVID-19 pandemic many individuals are now working at home. Here are some important things to understand if you are one of these individuals.
* Just because you are working from home does not make you “self-employed”. If you have been a W-2 employee and you are working at home, either for your personal health or convenience or because your regular office is closed and your employer requires you to work at home, you will continue to be a W-2 employee.
* An employee receiving a W-2 cannot deduct any unreimbursed out of pocket “employee business expenses” anywhere on their federal Form 1040. This includes the allocated expenses of a home office. New York does still allow the deduction of employee business expense, subject to the 2% of AGI exclusion, if you itemize on your NY state income tax return.
* You cannot be both an employee and a self-employed sub-contractor for the same employer/company if you are doing the exact same work. You cannot legally receive both a W-2 and a 1099-NEC from the same employer/company for doing the exact same job.
* The exclusive-area and exclusive-use requirements for a deductible home office for self-employed sub-contractors still apply.
* A self-employed sub-contractor receiving a Form 1099-NEC is not eligible for any employee benefits such as employer-provided health or life insurance, employer contributions to a retirement plan or HSA, or accrued sick or vacation pay.
* A self-employed sub-contractor receiving a 1099-NEC must pay both halves of the applicable FICA (Social Security and Medicare) tax. A W-2 employee pays half and the employer pays half.
* A self-employed sub-contractor cannot collect state unemployment benefits under “normal” circumstances.
See my earlier post “Don’t Expect a Home Office Deduction for Employees on Your 2020Form 1040”.