Payroll in Practice: 7.14.2025

Question: A company has a mobile workforce that provides services throughout the continental United States. Most of the workers have taxes withheld for multiple states. Does a Form W-2 that reports income for multiple states indicate to the IRS that the employee is an itinerant?

Answer: The number of states reported on Form W-2, Wage and Tax Statement, is not a reason for the IRS to assume that an employee is an itinerant. The determining factor is whether the employee has a tax home.

The concept of tax home relates to the deduction or exclusion of travel expenses from taxable income. Expenses must be for travel “away from home” to be allowed as a reduction of taxable income. “Home” refers to the employee’s tax home.

The tax home generally is the employee’s principal place of business. However, if an employee does not have a principal place of business, the tax home may be the employee’s regular place of abode. The key factor is not the number of work locations but rather whether the employee has a principal place of business or a regular place of abode that qualifies as a “tax home.”

The existence of a tax home is important for employees who travel extensively. Travel expenses cannot reduce the income of itinerants because an itinerant employee never travels away from home. An employer must include any reimbursed expenses in taxable income, and the itinerant cannot deduct the expenses.

The issue is exacerbated under current tax law, which generally does not allow employees to deduct unreimbursed travel expenses. However, reimbursement of employee business expenses under an employer’s accountable plan still qualifies for an income exclusion provided that the employee is traveling away from their tax home.

Employer travel expense reimbursements, even under an accountable plan, may not be excluded from an itinerant’s wages. To exclude such reimbursements, the employer must determine that the employee has a tax home, whether that is a principal place of business or a qualifying abode.

An employer might help an employee meet the requirement for a principal place of business through a bona fide office in the employee’s home. However, it may be more difficult for an employer to determine whether a tax home exists in the form of a regular place of abode.

IRS Revenue Ruling 73-529 provides three objective factors used to determine whether a taxpayer has a “home” in the form of a regular place of abode in a real and substantial sense or is itinerant.

The three factors are:

1. Whether the taxpayer performs a portion of business in the vicinity of the claimed abode and uses the abode for purposes of their lodging while performing business there.
2. Whether the taxpayer’s living expenses incurred at the claimed abode are duplicated because business requires travel away from the abode.
3. Whether the taxpayer (a) has not abandoned the vicinity which includes the location of both the taxpayer’s historical place of lodging and claimed abode, (b) has a marital or lineal family member or family members currently residing at the claimed abode, or (c) uses the claimed abode frequently for purposes of the taxpayer’s lodging.

In the ruling, the IRS stated that it will recognize that a taxpayer has a home for travel expense deduction purposes if the taxpayer claims an abode and satisfies all three of the objective factors.

If a taxpayer does not satisfy all three factors, but does satisfy two of the three, then all the facts and circumstances of the taxpayer’s case are closely reviewed to determine whether the taxpayer has a home in the form of a regular place of abode in a real and substantial sense or is itinerant.

If a taxpayer fails to satisfy at least two of the three objective factors, they are regarded as an itinerant worker whose home is wherever they happen to work. Consequently, they cannot claim to be “away from home” for the purpose of deducting or excluding travel expenses from income.

The company can help an employee establish an abode by making sure the employee has assignments within the vicinity of the claimed abode to satisfy the first criterion of the ruling. To satisfy the second criterion, the employee must pay living expenses, such as rent, at the claimed abode such that the living expenses are duplicated when traveling away from home. The third criterion is also under the employee’s control.

This column does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., or its owners.

Author Information
Patrick Haggerty is the owner of a tax practice in Chapel Hill, North Carolina, and an enrolled agent licensed to practice before the Internal Revenue Service. The author may be contacted at phaggerty@prodigy.net.

Do you have a question for Payroll in Practice? Send it to phaggerty@prodigy.net.