🌟 KEY TAKEAWAYS
W-2 employees are those who are formally employed by a US company or organization and receive a W-2 tax form.
There are a number of tax deductions that W-2 employees can use to reduce their taxable income.
The simplest and usually largest deduction is the standard deduction.
Other deductions include itemized deductions, 401(k) elective deferrals, and IRA contributions. Retirement deductions are known as a Retirement Savings Contribution Credit.
7 tax write-offs for W-2 employees
Discover some of the biggest deductions including the standard deduction and itemized deductions, then explore smaller tax write-offs to see which can benefit you.
1. Standard deduction
Almost all W-2 employees are eligible for the standard deduction, which is one of the largest deductions that you can apply to reduce your taxable income. For the 2025 tax year, the standard deduction is $15,750 for single filers or for married people filing separately. For heads of household, it is $23,625, and for a married couple filing jointly the standard deduction is $31,500. These deduction amounts are adjusted for inflation each year and may be slightly different based on age, disability, and other personal factors. You claim the standard deduction when you file your federal income taxes each year.
2. Rental property loss deduction
If you’re a W-2 worker who owns a rental property that you’ve lost money on, you may be able to claim some of that loss, called Passive Activity Loss (PAL), to offset your passive income from other sources (like investments or other rental properties). This loss might be due to unpaid rent by your tenants, or market decline or high maintenance and repair costs.
Any losses exceeding your passive income are "suspended” and can be carried forward to future tax years. PAL is usually limited to the amount of your passive income. However, the "$25,000 Rule” allows you to deduct up to $25,000 in rental losses against your active income (employee wages or self-employment income) if you meet certain specific criteria. Additionally, this deduction is phased out if your Modified Adjusted Gross Income (MAGI) is between $100,000 and $150,000. MAGI is your adjusted gross income plus certain nontaxable earnings.
3. 401(k) plan
Pre-tax contributions to a 401(k) plan offer several benefits. They allow you to reduce your gross (before taxes) income, which in turn lowers your taxable income for the year. Making a 401(k) contribution reduces your taxable income. Although you will be taxed on the amount you contributed to the 401(k) plan when you start making withdrawals during your retirement, you can create a tax plan and strategize to pay taxes based on a lower tax rate. This enables you to reduce the overall amount of taxes you pay on 401(k) contributions.
4. IRA
If you aren’t covered by a retirement plan with your employer, you’re allowed to claim the full amount of your IRA contributions as a tax deduction. For those who are married, if your spouse is covered by their workplace retirement plan, you can still claim some deductions but the amounts may be reduced. Workers, who are covered by their employers may also be able to claim some IRA tax deductions, but these amounts are limited if your income exceeds a certain amount.
5. Child tax credit
Although not a deduction, this tax credit is important for taxpayers who are parents. Unlike tax deductions, credits directly reduce the amount of income tax you owe for the year, dollar-for-dollar. There are 7 eligibility criteria in order to claim the child tax credit:
- Age: The child must be under 17 at the end of the tax year.
- Relationship: The child must be your son, daughter, or sibling (step, foster, and adoption children also qualify). The child can also be a descendant of one of these people, like your grandchild, nephew, or niece.
- Support: The child can’t have provided more than half of their own financial support during the tax year.
- Dependent: You must claim the child as your dependent on your tax return, and they must meet the IRS criteria to be considered a dependent.
- Living Arrangements: The child must live with you for more than half the year.
- Citizenship: The child must be a US citizen, national, or resident alien.
- The child cannot file a joint tax return with their spouse.
For the tax year 2025, the child tax credit is up to $2,200 per qualifying child, with a refundable portion of up to $1,700 per child.
6. Home mortgage interest
If you’ve taken out a mortgage on your home, you may be eligible to claim some of the interest on that loan as a tax deduction. In order to do so, your mortgage has to be a secured debt that you intend to repay, and you must include home mortgage interest as part of itemized deductions on Schedule A, Form 1040—meaning you can’t claim this deduction if you choose to claim the standard deduction. The amounts you can claim depend on the amount of your mortgage and when it was incurred.
7. Charitable contributions
In previous years, charitable donations were available as a tax deduction for everyone. As of 2023, they can only be claimed as part of the itemized deductions and are subject to overall AGI limits (60% of AGI for cash donations). If you choose to take the standard deduction, you won’t be able to write off any charitable contributions. New tax rules creating a deduction for non-itemizers and new limits for itemizers do not take effect until 2026.
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Non-deductible W-2 employees expenses
While there are plenty of helpful tax write-offs for W-2 employees, there are some expenses that you can’t claim. These include:
Commuting expenses
As of 2018, W-2 employees can no longer claim vehicle expenses as an itemized deduction. However, if you use your car for work-related travel, then your employer might reimburse you for the costs.
Political contributions
If you’ve contributed funds to a political party or other political organization, you’re not eligible to deduct this amount on your taxes. This is because political organizations don’t qualify as 501(c)(3) organizations recognized by the IRS as exempt from federal taxes, so political contributions are not classified as a charitable donation.
Professional dues and memberships
Prior to the Tax Cuts and Job Act of 2017, employees were able to deduct some professional memberships like union dues. This tax write-off was removed in 2017, so W-2 employees are no longer able to deduct any type of professional dues and memberships.
Home office
While freelancers, small business owners, and other self-employed people can deduct some home office expenses on their taxes, the home office deduction doesn’t extend to W-2 employees. Even if you work hybrid or are fully remote, you’re not eligible to claim this space as a business expense to reduce your tax bill.
Entertainment and meal costs
Entertainment and meal costs aren’t deductible for W-2 employees, even when you’re entertaining business clients.
Personal expenses
Personal expenses cover a broad range of things from laptops and personal equipment to home wifi and cell phone plans. Unfortunately, even if you work from home and use your home wifi for business, you can’t continue deducting those expenses anymore.
With FreshBooks, you Can prepare your taxes more easily
If you’re a W-2 employee, there are a number of W-2 tax credits and deductions you can claim to reduce your taxable income and income taxes. One of the easiest deductions is the standard deduction, which almost everyone can claim. It’s a flat amount based on age and filing status, so you can reduce your taxable income. You can also explore 401(k) contributions, itemized deductions like home mortgage interest deductions, and other tax breaks.
FreshBooks accounting software helps you keep track of all your expenses so you can make the most of your tax relief claims. You can categorize expenses and find tax support to make tax season easier than ever. Try FreshBooks free to discover easy personal and business accounting today.
If you own a business and are looking for tips on tax filing, explore Small Business Tax Deductions for helpful tips on eligibility and how to claim your tax reliefs.
FAQs about tax deductions For W-2 employees
Learn even more about W-2 employee tax deductions with frequently asked questions on what is deductible and what isn’t.
How can a W-2 employee reduce taxes?
The easiest way for a W-2 employee to reduce their taxes is to claim tax deductions. The simplest write-off is the standard deduction, which is also often the largest deduction. If you have a lot of medical expenses, you might want to consider claiming itemized deductions instead.
Can a W-2 employee write off vehicle expenses?
W-2 employees can no longer write off vehicle-commuting expenses on their tax returns. You may be able to receive a mileage reimbursement if your employer offers that, though it’s not required by the IRS. FreshBooks mileage tracker app lets you track your mileage so you can easily submit your employee expense reports.
Can a W-2 employee deduct unreimbursed employee expenses?
Most unreimbursed employee expenses can’t be claimed by W-2 employees on their federal income taxes. Ask your employer if they would reimburse you for those expenses because those expenses are usually deductible to them.
What can I deduct if I work remotely?
While you can’t deduct your home office or meals, you can still claim the standard deduction to lower your taxable income. You can also take advantage of deductions like IRA and 401(k) to reduce your taxable income, as well as charitable contributions and home mortgage interest if you decide to itemize your deductions.
Should mileage reimbursement be included on W-2?
If your mileage reimbursement exceeds the IRS standard mileage rates, the excess amount is taxable and will be included in your total wages in your W-2 form. The amount up to the federal rate will not be taxable to you, and you cannot claim a mileage deduction on your personal tax return.
Can you claim your internet bill on taxes?
Your internet bill usually qualifies as a personal expense, so you can’t claim this on your federal income tax return. You may be able to deduct a portion of your internet bill if you’re self-employed and using the internet for business, but if you’re a W-2 employee, you can’t claim internet even if you work remotely.
More useful resources
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