In the latest installment of our series on the new tax reform package, we’re breaking down several key updates that will affect employees, educators, and taxpayers who itemize deductions.
These provisions focus on miscellaneous deductions, fringe benefits, and moving expense rules — all of which are set to change starting in the 2026 tax year.
Most Miscellaneous Itemized Deductions Are Gone for Good — Except One
The temporary suspension of most miscellaneous itemized deductions (such as unreimbursed employee expenses and tax prep fees) will now be made permanent.
However, there's one important exception: educator expenses will now be fully deductible under a revised rule that expands eligibility.
What’s changing:
Eligible expenses now include a broader range of instructional supplies and activities.
Coaches and interscholastic sports administrators are now included.
The previous dollar cap is removed when these expenses are claimed as miscellaneous deductions (though other rules still apply).
Why it matters: This is a welcome change for teachers and school staff who routinely spend personal funds on classroom needs. For other taxpayers, it confirms that most unreimbursed W-2 expenses remain non-deductible.
Itemized Deductions Will Be Capped for High-Income Taxpayers
A modified version of the “Pease limitation” is back. Under the new rule, itemized deductions will be reduced by 2/37 of the lesser of:
Your total itemized deductions, or
Your taxable income above the top 37% tax bracket threshold
This limitation applies after all other deduction limits and does not affect the Qualified Business Income (QBI) deduction.
Why it matters: High earners may no longer receive the full benefit of their charitable contributions, state and local tax (SALT) deductions, or mortgage interest. Tax planning at higher income levels will need to account for this haircut.
Qualified Transportation Fringe Benefits Updated
The bill eliminates certain lesser-used transportation benefits, including:
Bicycle commuting reimbursements
Some exclusions for parking and transit that had been restricted under prior law
However, commuter transit and parking benefits remain tax-free up to applicable limits (adjusted annually for inflation).
Why it matters: For employers offering transportation benefits, the rules are now streamlined. For employees, common pre-tax parking and transit benefits remain intact.
Moving Expense Deduction Narrowed — With a New Exception
The moving expense deduction and exclusion for employer-provided moving assistance, which had been suspended for most taxpayers since 2018, will remain suspended indefinitely.
However, a new exception is being added for:
Civilian employees of the intelligence community, who will now be treated similarly to military members when relocating due to work assignments
Why it matters: For most employees, moving expenses remain nondeductible. But federal intelligence personnel gain a new tax benefit that aligns with military relocation treatment.
Key Takeaways
Educators, including coaches and non-classroom staff, gain expanded access to deductions for out-of-pocket expenses.
High-income earners may see reduced value from itemized deductions.
Employers offering transportation benefits should review current plan designs for compliance.
Moving expense deductions remain limited, but one new exception is added for intelligence community employees.
All of these changes take effect starting January 1, 2026, but early awareness helps with 2025 year-end planning and benefit design for employers.
If you’re unsure how these changes affect your deductions or benefit programs, our team is here to help. Stay tuned as we continue unpacking the rest of the tax bill in plain English.