What it means
When a tax authority asks where your tax home is, it is asking where you mainly earn your living. For an employee that is normally the city or area where the regular workplace is located, and for a self-employed person it is the main place of business.
Where you live is a separate question, which is dealt with by the rules on residence. The concept matters because travel costs are only deductible when you are travelling away from your tax home for business.
A commute from your house to your regular workplace is a personal cost, while a trip to a client in another city may be a business cost. Keeping receipts and a simple travel diary makes it far easier to show that a trip was for business.
Some people have more than one place of work, and the authority then looks at where you spend more time, where more of your income comes from and where the business activity is greater. Those factors identify the main one, and the others are treated as secondary.
Where the facts are close, the authority may ask for evidence such as contracts, pay records and calendars. People with no regular main place of business face a particular risk.
If you move between assignments with no real base, the authority may treat you as having no tax home, which can mean you cannot deduct the living costs you incur while travelling. This is a common problem for people who work on short, scattered contracts and treat their travel as a permanent lifestyle.
The idea also appears in the rules on foreign earned income. To use certain exclusions for working overseas, a person typically needs their tax home to be in another country and must meet either a residence test or a physical presence test.
Meeting these tests requires careful records of days spent in each country. The nuance is that tax home is not the same as the place your family lives or the address on your driving licence.
It follows the work, which is why records of where you work and for how long can settle a dispute. Keep a short written note explaining why you consider a given place to be your main place of work.
In practice
Real-world examples.
Example
A consultant based in Chicago flies to Denver for a three-week project and stays in a hotel. Because her tax home is Chicago, the airfare, hotel and meals during the assignment can count as business travel costs. The trip is clearly temporary and away from her main place of work. Her employer reimburses the costs under an accountable plan, so none of it is taxed as extra pay.
Example
A site manager takes a job in a new city and moves there, expecting to stay for years. His regular workplace is now in that city, so his tax home has moved, and the cost of living there is no longer a travel expense. His previous city's costs cannot be claimed. The move also changes how his employer should treat any relocation payments.
Example
A freelance photographer has no office and moves between short contracts in different cities, staying with friends. She cannot show a main place of business, so the authority may find she has no tax home. As a result, her claim for travel and lodging costs is disallowed. She would have been in a stronger position with a rented studio and regular clients in one area.
Case study
Seen in the real world.
Fairbanks and Lowe is an illustrative, fictional engineering consultancy whose staff are sent to client sites around the country. A new finance manager noticed that two engineers had been claiming lodging for projects lasting nearly two years.
The manager asked what the expected duration of each assignment had been. The engineers had been told it was temporary, but the work kept being extended, and the company's records showed that both of them had effectively relocated.
In this illustrative story, the firm reviewed its policy and made clear that long assignments could change the engineers' tax homes. It began tracking assignment length at the start, advised staff in advance, and corrected the claims, saving the company from larger payroll tax issues later.
Watch out
Common mistakes.
- Assuming the tax home is wherever your family lives, when it is generally tied to your main place of work.
- Claiming lodging for an assignment that lasts a long time, when a very long stay can move your tax home.
- Keeping no travel logs, which leaves you unable to show where you worked and for how long.
Questions
People also ask.
Can I have two tax homes?
Generally you have one, so if you work in two places the authority will look at time, income and activity to decide which is the main one.
Is my commute a business expense?
No, the cost of getting from your home to your regular place of work is normally a personal expense.
Does working remotely change my tax home?
It can, because for some people the home office is the main place of business, so the facts of each case matter.
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