The Short Answer

1. Paying for a work expense yourself does not make it a Schedule C expense

Suppose an employee uses a personal credit card to pay for something needed for an employer’s project.

The card is personal.

The employee paid first.

But that does not turn the expense into the employee’s own business expense.

If the expense arose from performing services as a W-2 employee, it is an employee business expense.

That matters because self-employed business expenses and employee business expenses do not follow the same tax rules.

A self-employed person may be able to deduct ordinary and necessary business expenses on Schedule C.

A regular W-2 employee generally cannot move an unreimbursed job expense onto Schedule C simply because the employee paid it personally.

Who paid first ≠ whose business incurred the expense.

That distinction comes before the deduction.

2. Reimbursement is often better than a deduction

For an employee, the cleaner result is often for the employer to reimburse a legitimate business expense.

Under an accountable plan, three basic requirements generally apply:

1. The expense must have a business connection to the employee’s work.
2. The employee must adequately account for the expense within a reasonable period.
3. Any excess reimbursement or advance must be returned within a reasonable period.

When those requirements are met, the reimbursement generally is not wages and is not subject to federal income-tax withholding or employment taxes.

That is different from receiving a deduction.

With a deduction, the employee pays the cost and may reduce taxable income.

With a proper reimbursement, the employee gets the business cost back.

Reimbursement ≠ deduction

A $1 reimbursement puts $1 back in the employee’s pocket.

A $1 deduction does not save $1 of tax.

And for most W-2 employees, the federal deduction is not available anyway.

3. Forgetting to submit an expense does not create a deduction

This is especially important in Daisy’s situation.

Suppose the employer has a reimbursement process, but the employee forgets to submit the receipt.

That does not turn an employer expense into a personal tax-planning opportunity.

IRS guidance specifically says that if an employee is entitled to reimbursement from an employer but does not claim it, the employee cannot deduct the expenses to which that unclaimed reimbursement applies.

So:

Eligible for employer reimbursement
→ submit the expense.

Forgot to submit it
→ that does not automatically create a tax deduction.

Actually unreimbursed under the applicable rules
→ then determine whether any federal or state deduction is available.

Available reimbursement ≠ optional deduction

For an employee, the reimbursement process comes first.

4. If the expense truly remains unreimbursed, the federal deduction is limited

For 2025, most ordinary W-2 employees still could not deduct unreimbursed employee business expenses federally.

The federal suspension of miscellaneous itemized deductions subject to the 2% floor prevented the ordinary employee deduction.

Form 2106 was generally limited to employees in categories such as:

• Armed Forces reservists,
• qualified performing artists,
• fee-basis state or local government officials, and
• employees with impairment-related work expenses.

Daisy, working as an ordinary W-2 interior designer, does not fall into one of those categories merely because a project expense was necessary for her job.

That creates another important distinction:

Necessary for work ≠ federally deductible by the employee

The expense can be real.

The employee can have a receipt.

The employer can benefit from it.

And the federal deduction can still be zero.

5. Business mileage is not the same as commuting

Mileage is another place where the distinction matters.

For 2025, the federal standard mileage rate for business use of a vehicle was:

70¢ per mile.

But the mileage first has to be business mileage.

Travel from one workplace to another during the workday can generally qualify as business transportation. Visiting clients or traveling to a business meeting away from the regular workplace can also qualify.

Ordinary travel between home and a regular workplace, however, is generally commuting.

So for someone doing Daisy’s kind of work:

Office → client house
→ may be business transportation.

Client house → showroom
→ may be business transportation.

Showroom → vendor
→ may be business transportation.

Home → regular office
→ generally commuting.

Business driving ≠ commuting

And the standard mileage rate does not turn personal commuting into business mileage.

For reimbursement purposes, the employer’s policy and substantiation requirements also matter. Mileage records should generally show the date, miles traveled, and business purpose.

6. A taxable allowance is not the same as a tax-free reimbursement

Not every payment called an “expense allowance” qualifies as a tax-free reimbursement.

Under a nonaccountable plan, payments generally are treated as wages.

That can happen, for example, when the employee is not required to substantiate expenses or is not required to return excess advances.

So these two situations are not equivalent.

Employer properly reimburses qualifying expenses under an accountable plan
→ generally not taxable wages.

Employer pays an allowance under a nonaccountable plan
→ generally taxable wages.

For an ordinary W-2 employee, the second result can be particularly unfavorable because the payment may be taxable while the related employee expense still produces no federal deduction.

The label on the payment does not control the tax result.

How the reimbursement arrangement actually works does.

7. California can reach a different tax result

California did not follow the federal suspension of miscellaneous itemized deductions.

For the 2025 California return, qualifying unreimbursed employee expenses could be reported through Schedule CA using a Form 2106 calculation based on California law.

These expenses remain subject to a floor equal to:

2% of federal AGI.

For example, suppose federal AGI is:

$100,000

Two percent of federal AGI is:

$2,000

If the taxpayer has:

$3,500

of qualifying miscellaneous deductions subject to the floor, the amount remaining after the 2% floor is:

$1,500

before considering the rest of the California itemized-deduction calculation. The 2025 Schedule CA itself performs this calculation using federal AGI.

And this is still an itemized deduction.

Having an unreimbursed expense does not automatically create a California tax benefit.

California also allows a taxpayer who did not itemize federally to separately determine whether California itemizing is more favorable.

So:

No federal deduction ≠ no California deduction

But that does not mean an employee should intentionally skip an available employer reimbursement to create a California deduction.

Reimbursement should be addressed first.

Then any genuinely unreimbursed expense can be tested under California’s tax rules.

8. In California, reimbursement may be an employment-law question before it is a tax question

There is another reason Daisy should not immediately treat a project expense as her personal cost.

California Labor Code Section 2802 generally requires an employer to reimburse an employee for necessary expenditures or losses incurred as a direct consequence of performing the employee’s duties.

California’s Department of Industrial Relations summarizes the rule by stating that employees are entitled to reimbursement for business expenses incurred as a direct consequence of their work duties.

Whether a particular expense qualifies depends on the facts.

But the distinction matters.

The federal tax code may say:

“You cannot deduct this expense.”

That does not necessarily mean:

“You are supposed to pay for it personally.”

Those are two different questions.

One is a tax question.

The other may be an employer reimbursement question.

9. Receipts matter before tax season

Good expense records matter long before a tax return is prepared.

Depending on the expense, useful records can include:

receipts and invoices,

the date of the expense,

the project or client,

the business purpose,

mileage records,

parking or toll records,

and documentation showing when reimbursement was requested and received.

For an accountable plan, adequate substantiation is one of the basic requirements. IRS guidance also calls for records supporting the amount, time, place, and business purpose of applicable expenses.

For Daisy, the practical process is simpler than the terminology makes it sound.

Keep the receipt.

Identify the project.

Submit the expense.

Keep the reimbursement record.

Good records help with tax treatment.

More importantly, they help prevent a company expense from quietly becoming an employee’s personal expense.

10. What changed between 2025 and 2026?

For an ordinary W-2 employee, the federal answer did not become more favorable.

In 2025, the federal suspension of miscellaneous itemized deductions still prevented most ordinary employees from deducting unreimbursed employee business expenses.

That suspension had previously been scheduled to end after 2025.

Public Law 119-21 changed that.

Section 70110 removed the prior 2025 expiration and made the federal disallowance permanent for taxable years beginning after December 31, 2025, apart from the new treatment for qualifying educator expenses.

So for an ordinary W-2 employee:

2025
→ most unreimbursed employee business expenses were not federally deductible.

2026
→ the same basic result continues, and the prior scheduled expiration is gone.

California did not conform to this 2026 federal change. The FTB specifically identifies P.L. 119-21 Section 70110 and states that California does not conform.

So the federal/California difference remains relevant.

For employees, that makes reimbursement procedures more—not less—important.

Waiting for the federal employee deduction to return is no longer a planning strategy.

Common Mistakes

“My employer required the expense, so I can deduct it.”

Not necessarily. A legitimate work expense can still be nondeductible to an ordinary W-2 employee for federal purposes.

“I paid with my personal credit card, so I can put it on Schedule C.”

No. The payment method does not determine whether the expense belongs to employment or self-employment.

“I forgot to submit the receipt, so now it is an unreimbursed deduction.”

Not necessarily. If employer reimbursement was available but not claimed, simply failing to submit the expense does not create a federal deduction.

“My employer reimbursed me, so the reimbursement must be taxable.”

Not necessarily. A qualifying reimbursement under an accountable plan generally is not treated as wages.

“Every mile I drive because of work is business mileage.”

No. Business transportation and commuting are different.

“There is no federal deduction, so there cannot be a California deduction.”

Not necessarily. California has different rules for qualifying unreimbursed employee expenses.

“If I cannot deduct it, I just have to pay it myself.”

Not necessarily. In California, a necessary expense incurred as a direct consequence of performing employment duties may raise a separate employer-reimbursement issue.

The Key Distinction

For a W-2 employee, four questions need to stay separate.

1. Was the expense incurred for the employer’s business?
2. Was employer reimbursement available?
3. Was the expense actually reimbursed?
4. If it truly remains unreimbursed, does federal or state tax law allow any deduction?

Daisy does not need to turn every project receipt into a tax deduction.

The better question is whether the project cost belonged in her personal budget in the first place.

Reference

Employee Business Expenses and Reimbursements

IRS — Publication 463, Travel, Gift, and Car Expenses
Explains accountable and nonaccountable plans, employee reimbursements, mileage, transportation, commuting, substantiation, and the rule for expenses when an available reimbursement is not claimed.

IRS — Publication 463

IRS — 2025 Instructions for Form 2106, Employee Business Expenses
Explains the limited employee categories eligible to use Form 2106 federally and confirms the 2025 business mileage rate.

IRS — 2025 Instructions for Form 2106

Accountable Plans

IRS — Publication 15, Employer’s Tax Guide
Explains the three accountable-plan requirements and the payroll-tax treatment of accountable and nonaccountable reimbursements.

IRS — Publication 15

2026 Federal Law

Public Law 119-21, Section 70110
Makes the federal disallowance of miscellaneous itemized deductions permanent for taxable years beginning after 2025, subject to the educator-expense exception.

Public Law 119-21 — GovInfo

California

California FTB — 2025 Schedule CA (540) Instructions
Explains California’s nonconformity and the treatment of qualifying unreimbursed employee expenses.

California FTB — 2025 Schedule CA Instructions

California FTB — 2025 Schedule CA (540)
Shows unreimbursed employee expenses, the 2% federal-AGI calculation, and the California itemized-deduction comparison.

California FTB — 2025 Schedule CA

California FTB — Summary of Federal Income Tax Changes
Confirms that California does not conform to P.L. 119-21 Section 70110.

California FTB — Summary of Federal Income Tax Changes

California Employer Reimbursement

California Department of Industrial Relations — Deductions FAQ
Explains California’s general requirement that employers reimburse business expenses incurred as a direct consequence of an employee’s work duties.

California DIR — Deductions FAQ

See This Rule in the Story

Episode 10 — Her Turn

Daisy gets the kind of project she has been waiting for.

Leading the Newport Beach renovation also means more project expenses passing through her hands—parking, mileage, samples, deliveries, and the occasional receipt that is easy to deal with later.

But “for work” and “deductible on my tax return” are not the same thing.

Sometimes the more important question is whether the cost should have remained hers at all.

Read Episode 10 — Her Turn →