The 2% floor on miscellaneous itemized deductions is gone. The Tax Cuts and Jobs Act suspended it starting in 2018, and the One Big Beautiful Bill Act of 2025 made the elimination permanent. For individual taxpayers, expenses that once fell into this category, including unreimbursed employee costs, investment advisory fees, and tax preparation fees, produce no federal deduction, regardless of amount.1Office of the Law Revision Counsel. 26 U.S. Code 67 – 2-Percent Floor on Miscellaneous Itemized Deductions
What the 2% Floor Was
Section 67(a) let you deduct miscellaneous itemized expenses only to the extent their total exceeded 2% of your adjusted gross income. The first 2% of AGI worth of expenses produced no benefit. Anything above that could be deducted if you itemized.
Your AGI is total income minus above-the-line adjustments such as retirement contributions, student loan interest, and educator expenses.2Internal Revenue Service. Definition of Adjusted Gross Income That figure set the threshold.
The mechanic no longer matters for a current return. It matters only for understanding what changed and for anyone amending a pre-2018 year still open under the statute.
Expenses That Fell Under the 2% Floor
Section 67(b) defined miscellaneous itemized deductions as a catch-all: every itemized deduction not specifically excluded from the category. In practice, three clusters filled it.
The first was unreimbursed employee expenses. Professional dues, subscriptions to trade journals, uniforms not suitable for everyday wear, job-search costs in your current field, and business use of a home office all qualified when they were ordinary and necessary for the work.
The second was costs of producing or managing investment income. Investment advisory and management fees, legal and accounting fees for tax advice, safe deposit box rentals for investment records, tax preparation fees, and tax software all landed here.
The third was hobby expenses. If you earned income from an activity the IRS did not treat as a business, deductible costs were classified as miscellaneous itemized deductions. With the permanent elimination, hobby expenses are now entirely nondeductible while hobby income remains taxable.
What the Elimination Does and Does Not Cover
The TCJA added Section 67(g), suspending all miscellaneous itemized deductions for tax years 2018 through 2025. The One Big Beautiful Bill Act of 2025 replaced that temporary sunset with a permanent prohibition. Under Section 67(h), no miscellaneous itemized deduction is allowed for any taxable year beginning after December 31, 2017.1Office of the Law Revision Counsel. 26 U.S. Code 67 – 2-Percent Floor on Miscellaneous Itemized Deductions There is no expiration date.
The elimination applies only to the catch-all category. Section 67(b) always excluded a specific list of itemized deductions from the 2% floor, and those deductions survive intact under their own rules:
- Mortgage and investment interest under Section 163
- State and local taxes under Section 164
- Casualty and theft losses from federally declared disasters, and gambling losses up to winnings
- Charitable contributions under Section 170
- Medical and dental expenses exceeding 7.5% of AGI under Section 213
- Impairment-related work expenses for disabled employees
- Estate tax on income in respect of a decedent under Section 691(c)
- Educator expenses up to $300 for qualifying teachers
When people say miscellaneous itemized deductions are gone, they mean the catch-all bucket, not these listed items.
Employees Who Can Still Deduct Work Expenses
A narrow group of workers can still deduct unreimbursed business expenses because Section 62 classifies their deductions as above-the-line adjustments to AGI, not as miscellaneous itemized deductions under Section 67.3Office of the Law Revision Counsel. 26 U.S. Code 62 – Adjusted Gross Income Defined The permanent elimination does not reach them. The eligible categories:
- Armed Forces reservists, for travel to reserve duty performed more than 100 miles from home, limited to federal per diem rates
- Qualified performing artists who worked for at least two employers during the year, spent more than 10% of their performance income on work expenses, and had AGI of $16,000 or less before the deduction
- Fee-basis state and local officials paid entirely or partly on a fee basis rather than salary
- Disabled employees, for impairment-related work expenses necessary to perform the job
These workers file Form 2106 and carry the deduction to Schedule 1. The $16,000 AGI cap for performing artists has not been adjusted for inflation, which sharply limits who actually qualifies.
Statutory employees are a separate workaround. Full-time life insurance salespeople, certain delivery drivers, home workers who process materials for a company, and traveling salespeople receive a W-2 with the “statutory employee” box checked.4Internal Revenue Service. Statutory Employees They report income and business expenses on Schedule C. Because Schedule C deductions are business deductions, not itemized deductions, they were never subject to the 2% floor.
Estates and Non-Grantor Trusts
Different rules apply to estates and non-grantor trusts. Section 67(e) allows them to deduct administration costs that would not have been incurred if the property were not held in an estate or trust.5eCFR. 26 CFR 1.67-4 – Costs Paid or Incurred by Estates or Non-Grantor Trusts These deductions are above-the-line for the entity, so the elimination does not apply.
Trustee and executor commissions are the clearest example, since no individual would incur those costs. Attorney and accountant fees tied specifically to trust or estate administration also qualify. IRS Notice 2018-61 confirmed this treatment.6Internal Revenue Service. Notice 2018-61 The test is whether an individual holding the same property outside a trust or estate would have incurred the same cost. If yes, it falls into the eliminated miscellaneous category.
What to Do Instead
For a W-2 employee, the practical routes are narrow. Negotiate reimbursement directly with the employer, or ask about an accountable plan that covers business costs pre-tax. Both put the money back in your pocket without needing a federal deduction.
Self-employed workers are largely unaffected. Business expenses belong on Schedule C, which has nothing to do with Section 67. Someone paying investment advisory fees on a personal portfolio, however, absorbs those costs entirely after tax.
State returns are worth checking. Some states still allow a deduction or credit for unreimbursed employee expenses, so the federal elimination does not mean the expenses are worthless everywhere. The 2026 standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly, and with the miscellaneous category permanently closed, most former itemizers now come out ahead taking the standard deduction.7Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One Big Beautiful Bill