Note: The below information had implications for 2017/2018. Now that 2018 is over, please know that all job-related moving expenses for non-military employees are taxable. For more information check out IRS publication 521.
Until this year, taxpayers have enjoyed job-related moving expenses as a tax-free perk. By now though, you may be aware that last year’s tax reform law, Tax Cuts and Jobs Act (TCJA), will affect nearly all taxpayers’ returns, and moving expenses are no exception. As of 2018, the TCJA does not allow individuals to exclude job-related moving expenses from their taxable income. In other words, job-related moving expenses incurred in 2018 are taxable.
However, on September 21, 2018, the IRS announced a caveat: If employees’ qualified moving expenses were incurred before January 1, 2018, but reimbursed in 2018, they can exclude them from their taxable income. This is great news for your employees that moved in 2017, as they’ll receive the pre-TCJA tax break. As an employer, though, it may mean some tax adjustments and refund work on your part.
What do employers need to do?
Since TCJA went into effect at the beginning of this year, there’s a chance that you may have treated your employees’ 2017 moving-expense reimbursements as taxable. If you need to make corrections because you already withheld moving expenses from an employee, you will need to take the following steps:
- Submit corrections to the IRS. If you treated moving-related payments or reimbursements as taxable to the employee, you need to follow the IRS-sanctioned adjustment process or refund claims process to correct the overpayment. You can make corrections by filing form 941-X .
- Complete corrections prior to year-end. Make necessary corrections before the end of 2018, prior to issuing employees’ W-2 forms in early 2019.
- Update communications and policies for corrective processes. In case corrections are needed in the future, it’s a good idea to update your company communications and policies to ensure that corrective processes (e.g., submitting form 941-X) are in place.
Which moving expenses qualify as tax-deductible?
While the IRS has a comprehensive set of rules around qualifying moving expenses, the following expenses qualify as tax-deductible if your employees are moving themselves, their family and their belongings:
- Professional moving company services.
- Do-it-yourself moving trucks or pods.
- Gas and oil or the standard mileage rate, if the employee travels by car.
- Packing supplies (i.e., blankets, tape, boxes).
- Moving insurance.
- Moving help, for example, if the employee pays someone to help them load and unload the truck.
- Travel expenses (but not meals) for the employee and members of their household (one trip each).
- Storage for up to 30 days after goods are moved, before they are delivered to the employee’s new home.
One of the most important things to confirm, of course, is that your employees haven’t already deducted moving expenses on their 2017 personal income tax return; no double-dipping!
As always, we’ll be on the lookout for tax-related updates. To stay informed on the latest, subscribe to the Payroll Data blog, and follow us on LinkedIn and Facebook. And in the meantime, make sure you submit any necessary corrections before year’s end. That way, you can have peace of mind as we enter the new year.