Since we emerged from the pandemic, work-from-home has become much more prevalent. When employees work from home, they will likely incur some higher expenses, including stationery, upgrading their broadband network, and using more utilities – electricity and water.
Certain work from home measures can save costs for employers, and passing on some of these savings to employees can offset added costs they likely have to fork out.
For employers who are unable to or do not have a policy to reimburse employees for such expenses, you can direct your employees to IRAS’ framework for deducting allowable work-from-home expenses when they submit their income tax returns.
Allowable Expenses That Employees Can Claim On Tax Returns
Employees can already claim employment expenses that are “wholly and exclusively” for the production of their employment income. According to IRAS, these expenses must be:
#1 incurred while carrying out their official duties;
#2 not reimbursed by employers; and
#3 not capital or private in nature.
Some examples of allowable expenses include:
- entertainment expenses incurred when hosting clients. However, IRAS requires employees to exclude their share of the entertainment expenses.
- subscriptions paid to professional bodies or society for professional updates, knowledge and networking.
- travelling expenses incurred on public transport, such as buses, trains or taxis. These are for work-related travel rather than for travel from your home to the workplace and back.
At the same time, employees should also note that they cannot claim expenses for social purposes or maintaining goodwill, such as for meals with colleagues. Any expenses incurred for meeting potential clients are also not claimable.
If an employee leaves their job, any payment in lieu of notice for failing to serve the notice period, is also not claimable.
Read Also: How To Calculate Leave Encashment Or Salary-In-Lieu Of Notice Period For Your Employees
Allowable Working-From-Home Expenses (For Employees To Claim On Tax Returns)
In addition to the existing list of allowable expenses, IRAS has also created a list of work-from-home expenses that employees can claim on their tax returns. For employers, if you have reimbursed your employees for certain expenses, you can remind them that they should not be making the same claims.
The expenses that work-from-home employees can claim against their employment income include:
- Electricity charges
- Telecommunication charges
- WiFi expenses
Only additional charges for your electricity and telecommunication charges can be claimed against your employment income. Employees have to compare their bills before and after their work-from-home arrangements.
If you had set up a WiFi to work from home, but also use it for personal matters, you can still claim the costs as a work-from-home expense. Of course, if the WiFi is no longer required for work, but you continue to keep it, you should bear the costs personally and not claim it as a work-from-home expense.
If there are more than one person working from home within the household, IRAS also allows equal apportionment for the increase in shared expenses.
If an employee’s monthly electricity bill was $170 in March 2020, before any work from home arrangements were implemented, that can be used as a base figure for future computations on additional work from home expenses.
If the average electricity bill is $220 a month in 2023, employees may be able to justify a claim of ($220 – $170) x 12 months.
In this scenario, each of the working-from-home persons within the household can share an equal portion of the allowable claim amount.
Note that HDB households that receive U-Save rebates for their utilities must also deduct a proportionate amount for their electricity charges.
Working-From-Home Expenses That Employees Cannot Claim On Their Tax Returns
Employees can only claim additional running expenses incurred for work purposes. Put in a simple way, even though they had to cook more and use more water while at home, they cannot make claims for their water or gas bills as these are for private purposes.
Already highlighted above, the government provides utilities rebates, and these have to be taken into account when calculating the claimable additional electricity expenses.
Expenses that are capital in nature also cannot be claimed. This means setting-up cost of a better home fibre broadband or purchases an office chair and/or desk are not claimable.
Employees also cannot claim for additional home broadband costs after they are no longer required to work from home. This means the period an employer allows/requires its employees to work from home is important to note. AND, if an employee signs up for a contract for their home broadband, they cannot continue to claim any amount once they return to the workplace.
Expenses that are capital in nature, such as installation or connection fees paid for setting up fibre broadband, purchase of furniture, computer and other equipment that you may require to work from home.
Employees Have To Keep Proper Records
The deadline for employees to file their income tax is 18 April (for e-filing) and 15 April (for paper filing).
Employees should enter their employment expenses claim under the “Employment” section in their Income Tax Return.
They have to keep complete and proper records of all expenses incurred for 5 years. This means anything claimed in YA2024 (and incurred in 2023), has to be kept until 31 December 2028. These records and accounts must be supported by invoices, receipts, vouchers and other relevant documents. Estimates and improper records are not allowed.
Employees can use an Employment Expenses Schedule provided by IRAS to keep track and record the details of their employment expenses.
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