What are the tax consequences of paying for an employee's job-related moving expenses?
Author: Alice Gilman
An employer may reimburse an employee's job-related moving expenses tax-free, provided certain conditions are met. First, these amounts are limited to the following expenses:
- Expenses the employee incurs to move household goods and personal property from his or her old home to the new home;
- Direct traveling expenses, including lodging, but not food, from the old home to the new home;
- The cost of connecting and disconnecting utilities;
- The cost of shipping cars and household pets to a new home;
- The cost of storing and insuring household goods for 30 consecutive days following a move; and
- The reasonable cost of moving personal property to and from storage and storage expenses, for an employee who moves overseas.
Amounts an employer pays directly to third parties, such as moving companies, do not need to be included in the employee's income.
Second, an employer's payments or reimbursements must be limited to amounts that the employee could deduct if he or she was not reimbursed. An employee may deduct job-related moving expenses when the employee meets these conditions:
- The move generally occurs within one year after employment begins;
- The location of the employee's new job must be at least 50 miles farther from the employee's old home than the location of the old jobs was; and
- The employee must work in full-time employment for at least 39 weeks during the first 12 months after arriving in the general area of the new job. However, the employee need not remain employed by the same employer.
If an employee fails to satisfy these conditions, the employer's payment or reimbursement of the job-related moving expense is taxable income to the employee, and is subject to income tax withholding, FICA and FUTA. The employer must withhold when it no longer has a reasonable belief that the employee will qualify for a tax deduction.