What Is the Convenience of Employer Test?
The convenience of employer test is used to determine whether home office expenses or other work-related expenses paid by an employer are taxable.
The convenience of employer test mandates that any employee expenses paid for by the employer must be solely for the convenience of the employer, and must be incurred on the employer’s premises if applicable. If this is the case, those expenses are not included in the employee’s income.
- Expenses incurred by workers for the sake of their work are deductible if they pass the “convenience of employer” test.
- The point of this rule is to lower the cost of buying necessary equipment like computers or office space that is not provided by an employer.
Understanding the Convenience of Employer Test
The convenience of employer test applies both to the taxability of expenses paid by the employer and the deductibility of unreimbursed expenses borne by employees.
Unreimbursed expenses usually occur when the employer does not furnish the equipment, tools, or workspace necessary for the employee to do their job. This may be because the worker requires the use of special facilities that the employer cannot provide.
If the employee is paying these expenses and the expenses pass the convenience of employer test, then those expenses may be deductible (although subject to certain limitations). Secondary factors when applying the convenience of employer test include:
- The home office is required for, or a condition of, employment.
- The employer has a bona fide business purpose for utilizing a worker’s home office.
- The employee attends to some of the core duties of their employment in the home office.
- The employee interacts with clients, customers, or patients on a regular and continuous basis at the home office.
- The employer does not provide their worker with dedicated office space or other regular work accommodations at one of its locations.
- Whether the employer reimburses at a substantial level employee expenses for a home office (80% reimbursement is a norm).
Convenience of Employer Test: IRS Definition
As defined by the U.S. Internal Revenue Service (IRS), “convenience of employer” generally means that an employer has not provided an employee with the necessary resources for an employee to work remotely, such as a physical office or technology, which requires the worker to provide for their own home office equipment. Such a situation is for the convenience of the employer.
The convenience of employer test is outlined with examples in IRS Publication 587: Business Use of Your Home. The IRS stipulates that a home office may be used “for more than one business activity, but you cannot use it for any nonbusiness (that is, personal) activities.”
Example of Convenience of Employer Test
The following is an example of the convenience of employer test, provided by the IRS:
Kathleen is employed as a teacher. She is required to teach and meet with students at the school and to grade papers and tests. The school provides her with a small office where she can work on her lesson plans, grade papers, and tests, and meet with parents and students. The school does not require her to work at home.
Kathleen prefers to use the office she has set up in her home and does not use the one provided by the school. She uses this home office exclusively and regularly for the administrative duties of her teaching job.
Kathleen must meet the convenience-of-the-employer test, even if her home qualifies as her principal place of business for deducting expenses for its use. Her employer provides her with an office and does not require her to work at home, so she does not meet the convenience-of-the-employer test and cannot claim a deduction for the business use of her home.
Individual states may provide more detailed guidelines for their own rules for the convenience of employer test. For example, New York State’s Tax Treatment Guide for Non-Residents provides examples of several other factors relevant to the convenience of employer test.
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