Pennsylvania issues COVID home-office expense deduction guidance

By |2021-04-12T16:46:06-04:00March 11th, 2021|RSM, Tax|

Deduction may be too costly to claim


Authored by RSM US LLP

On March 9, 2021, the Pennsylvania Department of Revenue issued guidance addressing the application of the state’s home office deduction to individuals working from home during the COVID-19 pandemic. Although the guidance does not materially change the state’s general approach to determining whether a home office expense qualifies for deduction, it makes clear that the state will treat the home office as a business, and not residential, location for the purposes of all the state’s taxes. This treatment may result in costs far exceeding the value of the deduction and may discourage individuals who work from home from claiming the deduction.

Qualifying for the deduction is straightforward, and, for many individuals, is a matter of course during 2020. First, an individual must be working from home because either their employer does not provide a suitable work area, or the individual is not permitted to report to their normal employer-provided work area due to the pandemic. Second, the individual’s employer must require the employee to maintain a suitable place of work outside of their normal employer-provided work area, and that place must be where the individual principally and regularly performs their work. Third, the individual must use that work area solely for work-related purposes, and may not use that area for any personal reasons. Particularly during the pandemic, any individual working remotely from a dedicated home office would have little trouble meeting these requirements.

However, qualifying for the deduction is just the beginning, and the department makes clear that any space claimed for a home office deduction will be treated indefinitely as a business location for Pennsylvania tax purposes. What does this mean? On the front end, an individual claiming the deduction will have to track utility use related to their home office space, and pay the 6% state, and any applicable local, use tax on the utilities used. This is necessary because residential use of utilities are not subject to the sales and use tax. At the back end, when the individual eventually sells their home, they will have to pay income tax on the portion of their gain related to their home office space. In the aggregate, these costs could substantially outweigh any benefit of taking the deduction, particularly for individuals with a large amount of accumulated value in their home.

Although this is an individual deduction, businesses that were able to transition to a virtual environment in 2020 and are contemplating a permanent virtual transformation or some form of hybrid in-person/virtual workforce in the future should be aware of the potential impact of these types of rules on employee relations and their approaches to making the home office work. Pennsylvania is not the only state wrestling with the potential revenue cost of an increase in individual home office deductions. Remote workers and businesses are encouraged to follow this issue closely as it may significantly impact individual tax liability, employee relations and how businesses move forward with home office expense reimbursement or stipends in a virtual future.

Do you have questions or want to talk?

Call us at (800) 232-9547 or fill out the form below and we’ll contact you to discuss your specific situation.

  • Topic Name:
  • Should be Empty:

This article was written by Brian Kirkell, David Brunori , Mo Bell-Jacobs and originally appeared on 2021-03-11.
2020 RSM US LLP. All rights reserved.

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.


Insero & Co. CPAs, LLP is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how Insero & Co. CPAs can assist you, please call (800) 232-9547.

About the Author: