The 2% limit simply means that only the amount
of employee business expenses that exceed 2% of a taxpayer's
AGI are
deductible. In essence, the 2% limit reduces the benefit of the
airline crewmember's employee business expense
deductions somewhat.
The following describes why:
On Line 10 of
IRS Form 2106
(Employee Business Expenses), airline pilots and flight attendants will notice
the following statement:
...enter the total on
Schedule A (Form
1040), line 21....
The above line on
IRS Form 2106 transfers a pilot or flight attendant's unreimbursed airline
employee job expenses to IRS Schedule A, Line 21. Simply put, Schedule
A has a flight crewmember take the total
employee
business expenses above plus
tax preparation fees,
if they were not already claimed in IRS Form 2106, and compares that total to
the flight crewmember's AGI (Adjusted Gross
Income).
The AGI is transferred from IRS Form 1040 Line 38
(as of 2007). The reason it is called the 2% limit is that the
airline pilot or flight attendant will multiply his or her AGI by 2%. That
value is then compared to the employee business expenses (plus tax preparation
fees). Only the amount in excess of the the 2% limit is deductible.
Here are a couple of examples of
how the 2% limit affects flight
crewmember taxes:
John is an airline pilot who made $110,000 in
2007. We'll assume John's AGI (as calculated on IRS Form 1040 was $96,000
because john had some tax credits). Assume John's total employee business expenses from
IRS Form 2106 came to $5,500 which included the per diem deduction, other travel
expenses, and various airline employment expenses. John also had tax
preparation fees that were not included on IRS Form 2106 that added up to $280.
On Schedule A, John would enter:
| line 21
(entered from IRS Form 2106) |
5,500 |
| line 22 (tax
preparation fees) |
280 |
| line 23 (other
expenses) |
0 |
| line 24 Add 21
through 23 |
5,780 |
| line 25 (AGI
from IRS Form 1040 Line 38) |
96,000 |
| line 26
(multiply line 25 by 2% - .02) |
1,920 |
| line 27
(Subtract line 26 from line 24) |
3,860 |
So in the above example the 2% limit reduces
John's employee business expense tax deduction to $3,860 instead of $5,780.
Another example:
Sarah is a flight attendant who made $44,000 in
2007. We'll assume Sarah's AGI (as calculated on IRS Form 1040 was $38,000
because she had some tax credits). Assume Sarah's total employee business expenses from
IRS Form 2106 came to $4,800 which included the per diem deduction, other travel
expenses, and various airline employment expenses. Sarah also had tax
preparation fees that were not included on IRS Form 2106 that added up to $215.
On Schedule A, Sarah would enter:
| line 21
(entered from IRS Form 2106) |
4,800 |
| line 22 (tax
preparation fees) |
215 |
| line 23 (other
expenses) |
0 |
| line 24 Add 21
through 23 |
5,015 |
| line 25 (AGI
from IRS Form 1040 Line 38) |
38,000 |
| line 26
(multiply line 25 by 2% - .02) |
760 |
| line 27
(Subtract line 26 from line 24) |
4,255 |
So in the above example the 2% limit reduces
Sarah's employee business expense tax deduction to $4255 instead of $5,015.
One important thing to note from these two
examples. Sarah (who had less employee business deductions than John),
actually benefited more from the airline employee
business expense deduction because the 2% limit hit John harder. In
other words, the more a pilot or flight attendant earns, the worse the reduction
from the 2% limit.
