What Is IRS Form 2106?

Form 2106 Explained

Man playing acoustic guitar and singing on stage
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IRS Form 2106 allows you to claim an "above-the-line" adjustment to income for "Employee Business Expenses." It is filed with your federal Form 1040 tax return. The deduction is reserved for a few select workers, including performing artists who work as employees.

Employees used to have two options for claiming job-related expenses as a tax deduction. They could take this above-the-line deduction, or they could claim an itemized deduction for unreimbursed job expenses for W-2 income. Tax reform eliminated the itemized deduction option when the Tax Cuts and Jobs Act (TCJA) went into effect in 2018.

This change affects only employees, not independent contractors. You can still claim your expenses on Schedule C if you're self-employed, subject to certain rules.

Definition and Examples of Form 2106

Certain employees can use Form 2106 to deduct "ordinary and necessary" expenses they incur as they go about their jobs. The IRS says that "ordinary" means it's a common expense in your trade or profession. "Necessary" effectively means that you could not do your job without spending this money, or at least you couldn't do it conveniently. The expense must be "helpful and appropriate."

The above-the-line deduction on the Form 1040 tax return remains unaffected by the TCJA, and these adjustments to income are actually more tax-favorable than itemized deductions. You don't have to forego claiming the standard deduction to claim them, and they reduce your adjusted gross income (AGI), a factor upon which many other tax perks are based.

Form 2106

Taxpayers can claim adjustments to income and itemized deductions or the standard deduction as well.

Who Uses Form 2106?

The professions that qualify for this above-the-line deduction for job-related expenses include:

  • Performing artists
  • Armed forces reservists
  • Fee-based state or local government officials
  • Employees with impairment-related work expenses

The bad news is that not all performing artists will qualify because the terms and requirements for qualifying are rather strict. The four main rules to qualify include:

  1. Having worked as a performing artist as an employee for at least two employers during the tax year
  2. Receiving at least $200 or more from at least two of those employers
  3. Having allowable business expenses related to the performing arts of 10% or more of your gross income in the performing arts
  4. Having an adjusted gross income (AGI) of $16,000 or less before deducting expenses as a performing artist

Where To Get Form 2106

Form 2106 is available from the IRS online. You can complete it online, download it, or print it out and fill it in by hand. Make sure you have the most recent tax year's version of the form.

How To Fill Out Form 2106

Form 2106 has just three required sections on its first page. Enter your expenses in Step 1, then move on to Step 2 if your employer reimbursed you for any of them. This information should appear in box 12 of your W-2 Form under code "L." Step 3 walks you through the calculations necessary to arrive at your deduction.

You need only complete the second page of Form 2106 if you used your vehicle for work during the year. The second page starts with Part II.

Section A of Part II on the second page details your auto expenses. You'll next complete either Section B or Section C, depending on whether you want to claim the standard mileage rate or use your actual vehicle expenses and deduct a percentage of them equal to the percentage of miles you drove for work versus overall miles.

The standard mileage rate is 56 cents per mile for the 2021 tax year, the return you'll file in 2022. You might find that using a percentage of your actual auto expenses provides you with a better deduction, so do the calculations both ways before deciding.

Complete Section D to depreciate your vehicle only if you own the vehicle in question and you're claiming your actual vehicle expenses, not the standard mileage rate.

You can transfer the amount that appears on line 10 of Form 2106 to line 12 of Schedule 1, "Additional Income and Adjustments to Income." The total for your adjustments to income from Schedule 1 is then entered on line 10 of Form 1040.

Can Form 2106 Be E-Filed?

IRS Form 2106 accompanies your Form 1040, so it can be e-filed right along with your tax return. The IRS offers several e-filing options, including one you can access for free if your income was $72,000 or less in tax year 2021.

Where To Mail Form 2106

The address to which you'd mail a paper return to the IRS depends on your state and whether you're enclosing payment. The IRS provides info for each state on its website, telling you the address you should use.

Requirements for Filing Form 2106

The qualifying rules for performing artists are somewhat different than those for armed forces reservists, fee-based state and local government officials, and those with impairment-related work expenses.

Performing Artists

Performing artists qualify if they provide services in the arts for two or more employers and receive at least $200 in wages from those jobs. Your job-related expenses must be more than 10% of the gross income you earned from these jobs, and your AGI must be $16,000 or less—without regard to this deduction.

You can't claim this deduction if you're married and file a separate return unless you lived apart from your spouse throughout the entire tax year.

Armed Forces Reservists and Fee-Based Government Officials

You'll also qualify for this adjustment to income if you were a member of the Reserve of the Air Force, Army, Coast Guard, Marine Corps, Navy, Army National Guard, Air National Guard, or Public Health Service Reserve Corps. You can deduct expenses for traveling more than 100 miles from your main home. Your deductible expenses are limited to the federal per diem rates for the city you travel to.

Your job-related expenses are also deductible if you were a government official who was compensated entirely or partly on a fee basis.

Impairment-Related Work Expenses

If you are an employee with physical or mental disabilities and have attendant care at your place of work, you have impairment-related work expenses. Any other expenses you have in connection with your job that enable you to work also qualify. If you think this applies to you, IRS Publication 463 offers more details.

What If You're Self-Employed?

You haven't lost any deductions for work expenses if you're not an employee. Your expenses are the cost of doing business if you're a self-employed independent contractor and if you engage in your work activity with "continuity and regularity." These are still deductible; they're just reported and claimed differently.

You're an independent contractor/sole proprietor if you receive Form 1099-NEC from those you perform work for; you won't receive a W-2 from those companies.

Deduct your expenses on Schedule C, "Profit or Loss From Business" in this case. You don't have to meet the stringent rules for qualifying as a performing artist.

Speak with a tax professional if you're not sure whether you're an independent contractor or an employee. It can be difficult to make the distinction in this profession. There's a chance that you're an employee—even if you think you're not—if you accept work through the Screen Actors Guild, Actor's Equity, or the American Federation of Television and Radio Artists.

Tax Treatment of 'Loan-Out' Corporations

A personal service or "loan-out" corporation provides yet another tax option for performing artists, but these entities generally aren't feasible for any but the most successful performers. The corporation is formed to effectively sell the services of one or more entertainers. It pays the entertainers as employees, then claims their expenses as a business tax deduction.

Key Takeaways

  • IRS Form 2106 reports deductible employee business expenses to the IRS, but only for a few qualifying professions, such as performing artists who work as employees.
  • Form 2106 provides for an “above-the-line” deduction so you can file this form and claim it, then itemize or claim the standard deduction for your filing status as well.
  • Performing artists must meet certain rules before filing Form 2106, such as working for two or more employers and earning a minimum of $200 from both jobs.
  • Performing artists who are self-employed can deduct expenses on Schedule C of Form 1040, subject to fewer rules and conditions.

Frequently Asked Questions (FAQs)

What is IRS form 2106?

IRS Form 2106 is the form for employee business expenses. Performing artists, armed forces reservists, fee-based state or local officials, and those with impairment-related work expenses may need to fill it out and attach it to their tax return, Form 1040.

What does recovery period mean on IRS Form 2106?

A recovery period is the number of years over which you recover the cost of property, such as a vehicle. It is based on one of two depreciation systems—GDS or ADS. Under the ADS depreciation system, the recovery period for a vehicle or light-duty truck is five years. IRS Publication 946 offers more details.