Non-reimbursed Employee Expenses


When a borrower has non-reimbursed employee expenses (i.e. 2106 expenses), the borrower’s recurring monthly debt obligation must be determined using the borrower’s IRS Form 1040 including all schedules (Schedule A and IRS Form 2106) and net out any automobile depreciation claimed on IRS Form 2106.  When calculating DTI, a 24-month average should be subtracted from the borrower’s monthly income unless such expenses are automobile lease or loan payments that are already included in the DTI.  When 2106 expenses are increasing in the most recent year from the previous year, a 12-month average for the most recent year should be utilized.

Agency Guidelines

The following are the individual agency guidelines for non-reimbursed employee expenses:

Fannie Mae

  • Unreimbursed business expenses are no longer required to be considered when qualifying a borrower.

  • The full amount of an automobile allowance may now be included as income and the lease or financing expenditure must be included as a debt in the calculation of the debt-to-income (DTI) ratio. A history of receipt of this income continues to be required.    

Freddie Mac

  • 2106 expenses must only be subtracted from the borrower’s monthly income in cases where the borrower earns commission income – even if commission income represents less than 25% of his/her employment income for that particular job.  If tax returns or tax transcripts are obtained for reasons other than documenting employment income and the borrower reported 2106 expenses on Schedule A and IRS Form 2106, the 2106 expenses do not have to be subtracted from the borrower’s income provided the borrower does not earn commission income.

FHA, VA and Jumbo

  • Any 2106 expenses reflected on the borrower’s tax returns or tax transcripts must be subtracted from the borrower’s income regardless of whether or not the borrower earns commission income.


Topic Date: 12/20/18