The coronavirus pandemic has upended the way businesses and employees work.
Where there used to be a clear line between a traditional office employee and a self-employed worker, these days, a lot more people are working from home – and they’re paying for those expenses out of their own pocket!
That’s why the CRA took steps to help employees claim home expenses during this temporary period starting in 2020 – and extended this special, simplified deduction for 2021 and 2022. In this post, we’ll look at how it works for both employers and employees!
Using T2200S and T777S to Claim Home Expenses for Employees
As I mentioned, because so many full-time employees are working from home, the CRA has created a new temporary home expense deduction that will reduce income tax liability. This is relevant in cases where your employer has not reimbursed you for these expenses.
So, if you want to claim (or help your employees claim) any home office expenses on a tax return, you’ll need to know about two special forms: The T777S and the T2200S. (Note that these are the newly created forms for the pandemic, while their standard counterparts are the T777 and the T2200 for workers who were already working from home.)
The Difference Between T777S and T2200S
First of all, whether you worked from home during the pandemic because your employer required it – or because they gave you the option and you chose to work from home – you’re likely eligible for this deduction. With that said, how you claim it depends on how complex you want to get!
The difference between T777S and T2200S is mostly a matter of complexity: the T777S is used for the temporary flat rate (simplified) method, while both the T777S and T2200S are required for the detailed method. (Again, we want to emphasize that these simplified versions are only for workers who are at home because of the pandemic. Otherwise, you’d use the standard T777 and T2200.)
We’ll take a look at both of them to help you make the right choice for your tax situation!
Form T777S for the Simplified Method: Make It Easy
First, let’s dive into Form T777S. The T777S is all you need for the simplified version of the home office expenses deduction.
Here’s how the simplified method works:
- You have to have worked more than 50% of the time from home for at least four consecutive weeks in the year due to COVID-19.
- If so, you can claim $2 per day you worked from home during that continuous period.
- You can also claim additional days that you worked outside of that period due to the pandemic.
Because this form is simplified, there’s a maximum flat rate amount you can claim in each year: $400 per individual in 2020 and $500 per individual in 2021 and in 2022. So, for example, if you worked from home 150 days in 2021, you can claim a $300 deduction (i.e. $2 per day times the number of days worked).
On the plus side, you don’t have to prove anything to the CRA, so there’s no need to keep any supporting documents, calculate the size of your space, request verification of expenses from your employer, or do other manual calculations beyond the number of days you worked from home.
NOTE: Any days where you worked part-time or full-time count toward this total, but days off cannot be counted.
To actually claim the simplified method this way, you’ll use “Option 1 – Temporary flat rate method” on Form T777S, add the amount to Line 22900 “other employment expenses,”, then attach it to your income tax return for the appropriate tax year.
Form T2200S for the Detailed Method: Maximize Your Claim
The other option is Form T2200S (along with T777S). This one is required if you’re planning to use the detailed method for claiming your home expense deduction.
Now, let me clarify: To be eligible for the detailed method, you need to have had expenses related to the work space in your home. Here are some examples:
- Internet access fees
- Rent paid (where you live)
- Maintenance/repair costs
- Office supplies
Like with the simplified method, you’ll need to have worked for more than 50% of the time over at least four consecutive weeks to qualify for the detailed method.
The key difference, however, is that you can’t make these claims without supporting documents, including a signed copy of Form T2200S (i.e. the short/simplified T2200) from your employer.
So, why bother using the T2200S and going with the detailed method? It’s because your actual work-related (and non-reimbursed) home office expenses will result in a higher deduction than what you could get with the flat rate.
To claim the detailed method, you’ll use “Option 2 – Detailed method” on your Form T777S (used when you’re claiming home office expenses alone), or Form T777S to claim additional employment expenses on line 22900.
NOTE: If you could use a little help thinking through all of this, the Envolta team is here to help! You can contact us here to get started.
Who Is Not Eligible for T2200S Form?
As a reminder, some people won’t be eligible for the T2200S form. In that case, you must file form T777S with the simplified method instead.
For example, if you incurred valid home office expenses, but your employer reimbursed you for all of them, then you would not qualify for the detailed method, but could still take the flat rate deduction.
You may also have expenses that cannot be claimed, such as home mortgage interest or principal payments, home internet connection fees, furniture, and capital expenses. If these are the primary reason you’re looking at the detailed method, it would make more sense to just go for the simplified option.
What Employers Need to Know for Home Expenses Deduction
If you’re an employer, all of the information we’ve covered is just as relevant for you.
You need to look at your contracts, look at what happened over the last year, and give your employees the proper instruction on what they should do to account for their home expenses on their taxes this year.
Your employees will also be counting on you to provide the forms they need to back up any claims, using the T2200S or T2200.
Remember that the CRA will occasionally conduct review activities to maintain public confidence in the Canadian tax system. These steps are an important way to make sure that you and your employees have all the i’s dotted and t’s crossed when it comes to the CRA.
T777S vs T2200S Guide Wrap-up
In this quick guide, we covered all of the information you need to know to claim the home office deduction as an employee, using either the simplified or detailed method.
And if you’re an employer, we hopefully gave you some insight into the steps you need to take to support your employees with their home office expense deduction.
In a nutshell, use the T777S for the temporary flat rate method that the CRA made available to workers during the pandemic, or use the T2200S plus the T777S for a detailed accounting of your work-from-home expenses along with employer support.
Last but not least…
If you have any questions on the T777S or T2200S forms, or how to calculate and claim the home office expense deduction, contact us at Envolta to get started!