The rise of remote work has shifted a portion of a company’s operating costs onto its employees. A reliable, high-speed internet connection is a fundamental tool for most remote positions and an unavoidable business expense. Whether an employer must cover this cost is complex, governed by state law, tax regulations, and voluntary company policies. The answer depends entirely on the employee’s location and the specific reimbursement structure the company implements.
The Legal Obligation to Reimburse Employee Expenses
At the federal level, no broad statute mandates that employers reimburse remote workers for internet access or home office costs. The Fair Labor Standards Act (FLSA) only requires reimbursement if the unreimbursed expense causes the employee’s net pay to drop below the federal minimum wage rate. For the vast majority of salaried remote workers, this federal standard does not trigger an obligation for the employer to cover internet expenses.
The legal pressure for reimbursement comes from specific state labor laws that place the burden of business expenses on the employer. States like California, Illinois, and Montana have statutes that require employers to cover all “necessary expenditures or losses incurred by the employee in direct consequence of the discharge of their duties.” California Labor Code Section 2802 is a prime example, often interpreted by courts to include a reasonable percentage of an employee’s home internet service as a necessary business cost.
Courts typically require employers to cover a “reasonable percentage” of the total bill, reflecting the portion used for work versus personal use. For a full-time remote employee, this percentage often ranges from 20% to 50% of the monthly bill, depending on company policy and usage. The employer’s obligation generally applies even if the employee would have had internet service anyway, recognizing that the job requires a specific quality and reliability of service.
Common Company Policies for Internet and Utility Stipends
When not legally required to reimburse, many companies still offer support to remote employees to remain competitive and simplify payroll administration. These policies generally fall into three main models, varying in their complexity.
The first model is full, documented reimbursement, where employees submit detailed expense reports and receipts for their monthly internet bill. This method is administratively intensive but provides the most accurate coverage of the business-related cost.
The most common approach is issuing a fixed monthly stipend, often referred to as a non-accountable plan. This flat payment is typically a set amount, such as $50 or $100 per month, intended to cover connectivity costs. This method is simple for both the company and the employee, offering a predictable boost to income without the administrative hassle of tracking receipts.
A fixed stipend is frequently bundled to cover more than just internet access. Companies often include mobile phone service, basic office supplies, and a portion of increased utility costs, such as electricity, in the monthly allowance. The third model is no coverage at all, requiring the employee to absorb all costs, relying on the fact that federal law and most state laws do not mandate reimbursement.
Understanding the Tax Implications of Remote Work Reimbursement
The Internal Revenue Service (IRS) differentiates between two main types of reimbursement plans, which have significant implications for both the employer and the employee’s taxes. An “accountable plan” is the IRS-approved method for providing non-taxable reimbursement to an employee.
To qualify as accountable, the expenses must have a business connection, and the employee must adequately substantiate the costs with documentation. Furthermore, the employee must return any excess reimbursement or advance payments within a reasonable time. Reimbursements made under an accountable plan are not included in the employee’s taxable income, meaning they are tax-free and do not appear on the W-2 form.
Conversely, a fixed monthly stipend that does not require the employee to submit receipts or return unspent funds is categorized as a “non-accountable plan.” Payments made under a non-accountable plan are treated as supplemental wages and are fully taxable income to the employee. This means the employee must pay income tax, Social Security, and Medicare taxes on the stipend, reducing the net amount they receive.
The tax landscape for employees is further shaped by the suspension of the federal deduction for unreimbursed employee business expenses. This suspension, enacted by the Tax Cuts and Jobs Act (TCJA), is currently set to last through the end of 2025. Employees who pay for their own internet without reimbursement cannot deduct that cost on their federal tax returns during this period.
Practical Strategies for Requesting or Negotiating Internet Coverage
Remote employees who do not have a formal reimbursement policy can still proactively seek coverage for their internet expenses. The most effective strategy involves framing the request around business necessity and productivity, rather than personal benefit. Employees should emphasize that a reliable, high-speed connection is a mandatory tool for meeting performance expectations, similar to a company-provided laptop.
Preparing solid documentation is a fundamental step in any negotiation or request for an accountable reimbursement. Employees should gather monthly internet bills and, if possible, create a usage log to estimate the percentage of time the connection is used for work activities. This substantiation aligns with the requirements of state laws that mandate reimbursement for a “reasonable percentage” of the expense.
The most opportune times to negotiate internet coverage are during the initial hiring process or an annual performance review when compensation is already under discussion. Employees should be prepared to suggest a specific, documented figure, such as a percentage of the bill or a fixed monthly amount, based on the cost of their current service plan. This proactive, data-driven approach demonstrates the validity of the expense and provides the employer with a clear administrative solution.