Big changes to moving expenses deduction

Your Guide to State, Local, Federal, Estate + International Taxation

moving expenses, tax, deductions, tax reformAs if moving and a career change aren’t stressful enough, the rules around deducting moving expenses have dramatically shifted beginning in 2018 with the passage of the Tax Cuts & Jobs Act (TCJA).

Work-related moves for 2018 and beyond

Relative to qualified expenses of a work-related move, starting in 2018, both the deduction for qualified moving expenses AND the exclusion from employee income of employer reimbursements has been “suspended.” Employers may still choose to reimburse employees for moving expenses, but any reimbursement must be included in the employee’s taxable wages.

The only limited exception to the suspension is for active-duty members of the Armed Forces and their immediate families who move as a result military order that requires a permanent change of station.

Note that we referred to this as a “suspension” rather than a change in the tax law. The TCJA didn’t change the law that provided for the moving expense deduction, but rather suspended the law for the years 2018 through 2025. After 2025, the suspension is scheduled to end and theoretically, we’d revert to the original rules in place through 2017.

Work-related moves for 2017

The good news is the moving expense deduction is still available for qualified moving expenses that occurred in 2017. Prior to the passage of the TCJA, moving expenses paid by either the employer or the employee had been deductible as long certain criteria were met and included the following:

  1. The moving expenses were incurred within one year of when the employee starts working for the company.
  2. The move was necessitated by the new job because the employee was required to live near the place of employment or so that the employee would spend less time commuting compared to his old home.
  3. Distance test: the new place of work must have been at least 50 miles further than the old place of work from his old residence.
  4. Time test: the employee must work full-time at least 39 weeks during the first 12 months after arriving in the general location of the new job. In this case, full-time was defined as 30 hours per week and eligible to receive all benefits of full-time employees. Note that the 39-week test can be with more than one employer.
  5. Qualified expenses: These include the cost to transport the employee and the household members, the cost to pack and transport the employee’s household, storage and insurance during transit and the cost of transferring utilities
  6. Disqualified expenses included the cost of meals, expenses for selling the old home or purchasing a new home.

If you move and are not reimbursed by your new employer, you were still able to take an “above the line tax” deduction on your personal return by reporting the qualifying moving expenses on Form 3903 Moving Expenses. Above the line means regardless of whether you itemize or take the standard deduction, you would be able to deduct these costs.

When the employer reimburses for moving expenses, they could pay for any moving expenses they choose. However, they could only deduct qualified moving expenses that the employee would have otherwise reported on Form 3903.

To the extent the employer reimbursed the employee for qualified moving expenses, it was not includible as taxable wages to the employee. But any employer reimbursed moving costs that were disqualified had to be included in taxable wages and were subject to withholding.

Della Redaja, CPA