Once exclusive to the self-employed, tax allowances for remote employees have become more widely available as a result of the impact of the pandemic. But not every remote worker can access a remote work allowance - eligibility depends on a variety of factors that differ from country to country, and even region to region.
As an employer, knowing how and when your team members can access remote work allowances contributes to a wider corporate culture of care, leading to increased engagement and productivity. In this guide, we’ll cover everything you need to know to ensure your remote workers make the most out of their remote working experience, including:
- What a remote work allowance is
- Where working from home tax allowances are available
- Who’s eligible for them
- How home office tax deductions are calculated
- How to apply for remote work allowances
What Is a Remote Work Allowance?
Remote work allowance - also known as working from home or home office allowance - comes primarily in the form of a tax deduction for remote employees. The availability and regulations of remote work tax deductions, which are tied to an employee’s income tax and tax residency, vary a lot from country to country.
Generally speaking, items like utility bills, internet, computers, software, and office furniture are tax-deductible. In addition, rent may also be subject to tax deductions.
While tax deductions were more commonly available to self-employed workers, entrepreneurs, and freelancers previously, the COVID-19 pandemic and widespread shift to remote working spurred some tax authorities to introduce these measures for employed workers, too.
The phrase ‘remote work allowance’ can also be used to mean ‘remote work stipend’, which is a sum of money given to remote workers by their employer to help pay for the extra costs incurred by working from home. These stipends or allowances may or may not be tax-deductible depending on the local regulations. You can read all about remote work stipends in our separate guide.
Where Are Remote Working Allowances Available?
Tax reliefs, deductions, or exemptions have become available to remote employees in countries like Belgium, the UK, Australia, France, South Africa, amongst others. In some countries, these remote tax allowances are only considered to be a temporary measure during the pandemic. Therefore, it’s crucial to stay on top of changing regulations when hiring staff globally.
On the other hand, some jurisdictions haven’t adopted tax allowances for remote employees at all, despite many still working from home. For example, in the USA, there is no federal law stipulating that remote employees should receive tax deductions or relief. Instead, it’s up to each state to decide, and right now, most states don’t allow remote employees to write off or be reimbursed for home-office expenses.
Who Is Eligible for a Work from Home Allowance?
An employee’s eligibility for a remote work tax allowance depends on their tax residency - i.e., the authority they’re obliged to pay taxes to. Criteria for eligibility vary from country to country and state to state.
Broadly speaking, the primary consideration for tax allowance eligibility is that the home needs to be the employee’s primary place of work. In many cases, this means that at least 50%, if not all, of income is derived from work done at home. In some countries like Belgium, this criterion is less strict. There, employees only need to be working from home at least five days a month.
Many authorities, like South Africa, will also insist that an employee has a dedicated workspace in their home that is used exclusively for professional purposes. Only under this condition can tax be deducted for home office items, such as office furniture and utilities.
In countries like the UK, employees are only eligible for a remote work allowance if they have to work from home and don’t just choose to do so. As such, employees working for remote and remote-first companies would be eligible for the remote work allowance, as would employees who have to work from home temporarily due to COVID-19 restrictions.
Another common stipulation is that employers cannot have already paid or reimbursed an employee for home office expenses. If they have, employees will no longer be eligible for tax deductions.
How Are Working from Home Tax Deductions Calculated?
There are various methods for calculating remote work tax allowance, and again it depends on the tax authority in question.
In the UK, for example, remote employees can claim tax relief on £6 a week, with no evidence needed. Alternatively, they could claim tax relief on the exact amount of expenses incurred instead. In this case, evidence, including bills and receipts, is required.
In Australia, multiple calculation methods are also available:
- Shortcut method: A temporary method to calculate tax allowance for home expenses during the pandemic (for 2019–20 and 2020–21 tax returns). This may be extended depending on when work patterns return to normal.
- Fixed-rate method: A long-term solution through which employees receive AUD 0.52 in tax deductions per hour of home office work. Unlike the UK’s £6-a-week allowance, the Australian tax authority requires evidence of the additional expenses incurred.
- Actual cost method: Another long-term solution that is used to calculate tax allowance calculation based on actual costs.
While these methods may seem cumbersome, for many, they’re well worth the trouble to alleviate the costs incurred by remote working, which may lead to increased engagement and productivity.
How Do You Apply for a Remote Working Allowance?
In most applicable countries, employees have to apply for remote work allowances individually when they file their taxes. In some countries, like the UK, there are specific application forms available.
Employers generally don’t need to get involved with this process. However, knowing where and when your staff can access remote work tax allowances is highly recommended. If you want to support your remote team members, fuel their productivity, and foster a culture of care, you should make them aware of any relevant allowances they’re entitled to receive.