Are Union Dues Tax Deductible?

Employee business expense is a common term when dealing with taxes, and many believe that union dues are a classic example. By definition, an employee’s business expense is required in order for the employee to execute their occupation properly. Employee business expenses are currently not tax-deductible under current federal law as the ability to deduct these expenses has been suspended, starting in 2018 and running until 2025. The good news is that there are exceptions in which you can deduct union dues.

Unions Explained

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Unions became prevalent way back in the late 1700s, specifically as a way for the workers to influence their working environment by organizing and giving one solitary voice and organizing the workers. Unions have had some notable successes over the years but have also had some dark times linked to organized crime and political corruption. In today’s day and age, union membership isn’t as prevalent or robust as it once was but still does carry influence with executives and government officials.

To continue having a significant impact and level of influence, unions need professional organizers, financial experts, lobbyists, and attorneys, and none of that comes free. That’s where union dues come in. While they can be high, the cost of maintaining influence is expensive. In many industries, this influence is crucial to ensuring workers’ rights at the individual-company level and federal, state, and local government.

Union Dues Utilization

Unions need staff and infrastructure in order to operate effectively. Infrastructure would include supplies, equipment, furniture, and office space required to perform their duties. Meanwhile, staffing needs include clerical staff, policy analysts, arbitration specialists, lawyers, administrators, and accountants.

Political action committees, known as PACs, also need funding. Oddly enough, since PACs are fundraising entities themselves, they need funding to support political candidates that align with the ideals of the taxpayers the union represents. Most unions have both a local chapter as well as a national organization, and the union dues will be divvied between them accordingly.

Are Union Dues Burdensome to Workers?

Union dues aren’t necessarily cheap and can be a financial burden to workers as the average dues check-in at about $400 a year. For those workers at the lower wage structure, the financial burden can be significant.

Federal laws and case laws limit the amounts that unions are allowed to charge for union dues. These limits are because often the unions are a requirement that would give the unions undue influence. If they’re required, it gives them the ability to charge extravagant amounts. This is especially the case in states where union security agreements are enacted. In those states, it is a requirement for employment that the employee is part of the union. Therefore, the states have a vested interest in having the union dues be reasonable and not excessive.

Deductible: Expenses Incurred Prior to 2018

The first possible exemption has to do with any union dues you paid in 2017 and prior years. If you itemized in the year, you wish to deduct your dues or were eligible to itemize via Schedule A. If your dues along with other miscellaneous deductions exceed 2% of your adjusted gross income, it is possible that you could file an amended return and claim those union dues as a deduction. However, it must be an open tax year to amend your return, which simply means years the federal government is still accepting amended returns.

Deductible: Performing Artists and Fee-Based Government Officials

To qualify as a performing artist, you must have provided performing-art services for a minimum of two employers, and expenses incurred as a result of these performances were over 10% of the income generated from the performances. Finally, the adjusted gross income is no more than $16,000. Another one that qualifies for the deductible is a fee-based government official whose compensation is at least partially in the form of fees, such as a judge collecting a fee for a wedding.

If you fall into either of these categories and are eligible to deduct any employee business expenses, your business did not reimburse you. If you qualify, you calculate the deduction as an adjustment to your income rather than an itemized deduction.

Deductible: Eligible for Schedule C Deductions

If you’re a statutory employee or a sole proprietor, you’re eligible to use Schedule C to deduct all of your necessary business expenses. Typically, this only applies to businesses that were started to turn a profit. The primary qualification here is if the union dues are a necessity or not. For example, if you’re an independent contractor contracted for a job that requires union membership, that would count. However, if the contract doesn’t have this requirement, then the dues are not deductible as they are not necessary.

State Exemptions

Keep in mind that not all states follow the same tax laws as the federal government. So it’s possible that even if you don’t qualify based on these exemptions for your federal taxes, there may be a possibility that you can deduct from your state taxes. Make sure your tax preparer is aware of all union dues. If you’re utilizing tax-preparation software, input all union dues to see if they will be deductible on your state return.

Possible Changes

Four years have passed since union dues haven’t been deducted from federal taxes, and many lawmakers are attempting to bring it back and make it deductible without itemizing. The Tax Fairness for Workers Act has been proposed to reinstate deductions for union dues and other employee expenses that are not reimbursed, such as travel expenses and expenses for tools and uniforms. The Tax Fairness for Workers Act was proposed on April 15, 2021, by Democratic Senators Chuck Schumer of New York, Bob Casey of Pennsylvania, and Sherrod Brown of Ohio.

When it’s time to prepare your tax return, reach out to the professionals at Pasquesi Sheppard. We offer tax-preparation services for you or your small business. Our comprehensive approach addresses all of your tax planning and preparation needs. You can contact us online via our secure online messaging system or give us a call at 847-234-5000. A team member will be happy to answer any of your questions or get you set up with an appointment.