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HR Support on Moving Expenses for Relocating Staff
Editor's Note: Keep talented employees with tax-free moving expense reimbursements.
Overview: In today's job market, many people are accepting jobs that are farther from home than ever before. Others are willing to travel farther than they normally would or even to move their families to hold on to their current job if their employer relocates or asks them to work at a different office or branch. Employers can help lessen the cost of such moves and retain top talent by reimbursing such employees for some of their moving expenses on a tax-free basis.
Employers may reimburse employees tax-free only for moving expenses that are considered qualified under the Internal Revenue Code (IRC). Employer moving expense reimbursements are qualified if they are received by employees, directly or indirectly, for work related moving expenses that the employees could deduct on their personal income tax return if they had paid for the expenses themselves. Qualified moving expense reimbursements include the value of move related services furnished in-kind to employees.
The following additional rules of time and distance must be met for the reimbursements to be tax-free:
- The move must occur 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 previous home than was the location of the previous job.
- The employee must work full-time for at least 39 weeks during the first 12 months after arriving in the general area of the new job; however, an employee may still be reimbursed tax-free even if he or she is involuntarily terminated before the full length of this test is met.
Further, the employer must reasonably believe when the reimbursements are made that the employee(s) will meet the time and distance tests, even if the employer's belief later turns out to be wrong.
Before they can be reimbursed, employees must substantiate their moving expenses under the accountable plan rules of the IRC. In addition, only certain types of reasonable moving expenses may be reimbursed tax-free, such as expenses of moving household goods and personal property, direct traveling expenses, including lodging, but not food, from the prior home to the new home, among several others.
Note that some states have different rules regarding tax-free moving expense reimbursements.
Rena Pirsos, JD, Legal Editor
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About this topic
An explanation of the taxation of employer-provided moving expense reimbursements.
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Taxation of Employee Compensation
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What requirements must be met for moving expenses to be excluded from an employee's taxable income?
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