Clearing up confusion over use of home costs

Due to the impact of the Covid-19 pandemic, a number of employers and their staff members have opted to adopt a permanent work-from-home arrangement. This development prompts consideration of the expenses borne by employees for utilizing their homes for work and the extent to which employers can provide tax-free reimbursement for such costs. The Inland Revenue has deliberated on this issue.

In essence, the general guideline allows employers to compensate employees for a portion of their incurred costs. For instance, let’s consider Jane, who incurs a weekly rent of $400 while working from home. As ten percent of her home space is dedicated to work, she qualifies for a weekly reimbursement of $40.

Furthermore, Inland Revenue acknowledges the impracticality of reimbursing for the depreciation of office assets such as desks, chairs, bookshelves, carpets, and curtains. Consequently, a one-time payment of $400 has been established as the maximum amount an employer can reimburse an employee for equipment. Importantly, once this payment is made, it cannot be repeated for the same employee.

It’s essential to note that the $400 option is not obligatory. Employers have the option to calculate the actual cost (or a reasonable estimate) of assets and apply depreciation rules if they choose to do so.

Regarding telephone usage, a reasonable estimate of the cost share is allowed, although this may be impractical. In acknowledgment of this, Inland Revenue outlines two scenarios:

  1. If an employee does not utilize their own phone or usage plan, the maximum reimbursement is up to $15 a week.
  2. If an employee uses their own equipment and/or usage plan, the maximum reimbursement is up to $20 a week.

All reimbursements provided in these scenarios are exempt from taxation.