A recent IRS private letter ruling (PLR 202434006) allows employers to provide their employees with a choice as to how an employer contribution to a benefits program will be used that includes student loan reimbursements. The ruling addressed an employer’s new employee choice plan that allows an eligible employee to make annual elections before the start of each year to direct employer contributions to the employee’s:

• 401(k) defined contribution plan account as an employer contribution
• Health savings account
• Student loan reimbursements through an educational assistance plan
• Retiree health reimbursement arrangement

The plan would not allow employees to receive the employer funds in cash or as a taxable benefit. The PLR does not address the question of whether an employee can have their employer’s contribution split among two or more of the above-listed options, but it also does not bar employees from doing so.

The IRS’s ruling is notable because it allows an educational assistance program to reimburse qualified student loan payments if the plan provides for the reimbursements. The U.S. Coronavirus Aid, Relief, and Economic Security Act (CARES Act) of 2021 amended §127 to permit qualified student loan payments to be reimbursed from an educational assistance program until Jan. 1, 2026.

The unnamed business that requested the PLR asked the IRS whether an employer contribution can be contributed to the four options listed above without jeopardizing the plan’s qualified status. The IRS found that when an employee makes an irrevocable election to have employer dollars allocated to the program or programs of their choice prior to the beginning of the plan year, it will not treat them as elective contributions so long as the other rules governing the plans are followed.

While PLRs are generally considered to show the IRS’s thinking on an issue, only the taxpayer who requests the ruling can rely on it. It is recommended that any employers considering setting up a similar employee choice plan seek the approval of the IRS before doing so to reduce the risk of the agency finding fault with their plan.

The Financial Crimes Enforcement Network (FinCEN) has postponed 2023 FBAR filing deadlines for the victims of recent hurricanes and tropical storms. The following deadlines apply for victims with FBARs for the 2023 calendar year that were otherwise due Oct. 15:

• Hurricane Helene victims have until May 1, 2025
• Victims of hurricanes Beryl and Debby and Tropical Storm Francine have until Feb. 3, 2025

Understanding how to calculate the home office deduction will ensure you maximize your clients’ tax savings while remaining compliant with IRS rules. Accurate calculations help avoid audits and penalties, providing your clients peace of mind and financial benefits.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: Basically, W-2 employees cannot use the home office deduction, correct?

A: Correct. Form 2106, Employee Business Expenses, is not allowed at this time for employee business expenses. The unreimbursed employee business expenses were suspended as a result of the Tax Cuts and Jobs Act.

Q: Does the personal use of the closet space disqualify the business use of home?

A: No, the closet space just doesn’t count as part of the office space.

Q: Can self-employed people who pay rent deduct it as part of the home office?

A: Yes, they can deduct a portion of their rent instead of mortgage and taxes.

Q: Is the home office deduction limited to profit no matter which method is used, actual or simplified?

A: Yes. Regardless of the method used (simplified or regular), the home office deduction for any year is capped at the amount of business income. However, if the regular method is used, the taxpayer can carry over the amount they cannot use to subsequent tax years.

To learn more about calculating the home office deduction, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.