Sohail S. Hussaini v. Commissioner: When W-2 Employees Cannot Deduct Travel Expenses
Summary
In Sohail S. Hussaini v. Commissioner, T.C. Memo. 2025-82 (Aug. 4, 2025), the Tax Court reinforced a key principle of post-TCJA tax law: W-2 employees cannot deduct unreimbursed business expenses, including travel, unless they meet narrow exceptions under Internal Revenue Code §62(a)(2).
Hussaini, a computer engineer residing in Iowa, worked for two staffing firms that assigned him to projects in New Jersey and Maryland. He paid all travel costs himself and was not reimbursed. On his 2020 return, he claimed $46,147 in deductions on Schedule 1 as “certain business expenses of reservists, performing artists, and fee-basis government officials.”
The IRS disallowed the deduction and issued a deficiency notice for $8,955, plus an accuracy-related penalty.
The Law
Under IRC §162(a)(2), a taxpayer may deduct “ordinary and necessary” expenses for travel away from home in the pursuit of a trade or business. However, for employees, such deductions are not taken “above the line” unless they qualify under one of four exceptions in §62(a)(2):
Expenses reimbursed under an accountable plan
Expenses of a qualified performing artist
Expenses of a fee-basis government official
Expenses of a military reservist
Since Hussaini did not meet any of these exceptions, his only possible deduction route would have been as a miscellaneous itemized deduction under §162. However, §67(g), originally enacted under the Tax Cuts and Jobs Act of 2017, suspended all miscellaneous itemized deductions through 2025 and was later made permanent by the One Big Beautiful Bill Act (OBBBA), effectively eliminating those deductions for all future tax years.
The Court’s Decision
The Tax Court ruled that Hussaini, as a W-2 employee, could not deduct his unreimbursed travel expenses. His wages already included consideration for travel time, and his employers had no reimbursement plan. The Court did not need to analyze whether the expenses were substantiated or ordinary and necessary because the statutory disallowance under §67(g) made them nondeductible.
The Court upheld the IRS’s deficiency, though the Commissioner conceded the accuracy-related penalty.
Key Takeaways
Employee vs. Independent Contractor: Status matters. Independent contractors may deduct business travel expenses under §162, but W-2 employees generally cannot.
§67(g) Suspension: All unreimbursed employee business expenses—including travel, uniforms, professional dues, and tools—remain nondeductible for 2018 through 2025.
Exceptions are Narrow: Only reservists, qualified performing artists, fee-basis officials, and those reimbursed under accountable plans may claim these costs.
Plan Design is Critical: Employers can structure accountable plans or per diem arrangements to reimburse employee expenses tax-free.
Audit Risk: Claiming unreimbursed expenses on Schedule 1 or Schedule A during this suspension period is a common IRS trigger.
Practical Guidance
Employees with substantial travel costs should discuss reimbursement policies with their employers. Accountable plans allow employers to pay or reimburse travel and lodging expenses tax-free if substantiated under Treas. Reg. §1.62-2.
For self-employed taxpayers and contractors, travel expenses remain deductible if they meet the “ordinary and necessary” standard and are properly documented.
If you have unreimbursed work expenses, now is the time to review how your employment status and reimbursement policies affect your tax position. The permanent repeal of miscellaneous itemized deductions under the OBBBA means those costs are no longer deductible. I assist employees, contractors, and business owners in structuring compliant reimbursement and accountable plans that keep more income tax-free and prevent costly IRS adjustments. Contact me today to review your current arrangement and ensure you are claiming every deduction still allowed under current law.
