Tax Deductions for State Employees: What’s Changing Under the New Tax Code


If you’re a W2 state employee such as a fire fighter, police officer, teacher, or paramedic, then you may be familiar with federal tax deductions for non-reimbursed business expenses.

Under the old tax rule, W2 state employees were able to deduct non-reimbursed business expenses from their federal tax return if these expenses exceeded 2% of their adjusted gross income. These tax deductions in turn reduced state employees’ taxable liability by lowering their taxable income.

For example, under the prior tax code, Law Enforcement and Fire Fighters were able to write off a list of expenses for the law enforcement and fire fighting industry including: gun purchases, ammunition purchases, handcuffs, helicopter rentals, helmet, helmet maintenance, leather holster purchases, motor repair, inclement weather gear, safety and sunglasses.

If you’re filing a back tax return, those non-reimbursed items can still be deducted. However, moving forward into 2019, it’s important to know how the 2018 Tax Reform changes these rules:


The Breakdown: Being a W2 State Employee Under the New Tax Plan

So what does the 2018 Tax Reform change?

Under the 2018 Tax Plan, W2 wage earners will no longer be able to itemize their non-reimbursed business expenses on their 1040 tax return.

This means that all W2 government and state workers who were previously able to file itemized deductions cannot any longer. Like non-government W2 employees, the only items these workers will be able write off their federal tax returns are the standard: mortgage interest, property taxes, and charity.


How Can I Prepare?

If you’re a fire fighter, police officer, teacher, or other type of state employee, you may be wondering… well, now what?

Even though the government is taking employee business expense deductions away, it’s important to remember that’s not the only thing changing with the new 2018 Tax Reform.

In fact, the new tax plan restructures the income tax brackets that determine the rates individuals are taxed based on annual income. It’s possible this shift in the tax brackets may save certain W2 state employees as much as they’re losing from the business expense tax deduction they’re no longer allowed to take. And if you’re not one of those lucky individuals, you may want to start thinking about buying rental properties or starting a business outside of your W2 wage-earning job.

Either way, if you’re a W2 state employee, it’s best practice to meet with your local tax consultant and see how the 2018 Tax Reform will affect you personally.


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