It’s a month ‘till Labor Day, but come fall, tens of millions of Americans will still be working from home. It’s an open question, too, whether people will ever go back to an office five days a week, nine to five. Congress should update the tax code to reflect this new reality: The American home is no longer just a place for family and leisure, but also a place of business.
More than 67 million people — 42 percent of the American labor force — are working at home full-time right now, according to Stanford professor Nicholas Bloom. With COVID-19 still spreading, more companies, from Apple to Wayfair, are pushing back target dates for office returns into 2021.
It’s quite likely, then, that tens of millions of people will have spent a full year using their homes as offices — and, with staggered hours and days, they will spend much of next year doing the same.
This costs money. Workers are powering computers with their own electricity and Internet connections, and, home all day, they will use more air conditioning and heat. A portion of the rent or the mortgage, too, now subsidizes work, not home.
Come tax time, most workers who attempt to deduct some of the thousands of dollars in extra costs will be surprised: they can’t. Effective with the 2018 tax law, workers who earn a regular salary or wage from an employer can’t deduct any home-office expenses.
Even the self-employed have a hard time deducting home-office costs. The Internal Revenue Service, following Congress’ direction, thinks that when it comes to a home office, we’re all still living in idyllic 1950s America.
In “Leave it to Beaver,” Ward Cleaver has some sort of mysterious urban office job — and has a man-cave of a suburban home office for when he has to take some papers home. Everyone else, kids and mom, knows the office is off limits.
Likewise, the IRS requires the self-employed to use their home offices “exclusively” for work and for no other purpose. Tax advisers suggest you don’t have any “personal-use furnishings” in it.
The only audit-proof way to do this is the Ward Cleaver way: a separate room with a desk and a chair. This rule favors suburbanites. It also favors a lot of unproductive extra space. The bigger your office, the bigger the deduction, as it’s figured as a percentage of the square footage of your apartment or house.
Indeed, Ward Cleaver himself may be violating the “exclusivity” rule, as he uses his office for man-to-boy chats with his kids.
The rule has been outdated for close to two decades, since the Internet made it easier for us to do at least part of our jobs at home. COVID-19 has made it entirely obsolete.
We have all proved we can work perfectly well sprawled across the bed, at the kitchen table, in the backyard, or even sitting on the bathroom floor — or a combination of all, for a change of scenery every few hours. “Personal-use furnishings” are now the quirky backdrops of all of our Zoom calls.
Rather than offering people who still have their white-collar (or, these days, sweat-pants) jobs more stimulus, in the form of a second round of $1,200 checks, Congress should nod to the new reality, offering a new, equivalent deduction for the work-from-home crowd to defray new heating, cooling, computer-charging and connectivity costs.
Longer-term fixes are harder, as is everything with the tax code, where the simplest change means a cascade of unintended consequences.
It makes more sense to measure remote work by hours, not square feet. Why should the tax code favor someone who needs, and can afford, 500 square feet of special-purpose space to work, rather than a corner of the couch?
But letting people deduct the cost of their home by the hours they work there would mean tens of billions of dollars in lost tax dollars and would still favor people whose housing costs are higher, as they would have more to deduct.
Only one thing is certain: Congress should direct the IRS to scrap the Ward Cleaver rule. The separate man-cave just steps — but a world away — from where mom is cooking dinner has proved a luxury, not a necessity. The self-employed who want the taxpayer to subsidize a remote office should have to commute to it, just as the rest of us once did.
Nicole Gelinas is a Manhattan Institute senior fellow.
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